IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v28y2022i16p1599-1620.html
   My bibliography  Save this article

A view to a deal: the effect of upcoming investment banking transactions on financial analysts’ target price estimates

Author

Listed:
  • Benno Kammann
  • Jörg Prokop

Abstract

This study investigates whether sell-side analysts issue inflated target price estimates to compete for investment banking mandates in the European Union (EU), and whether country-specific weaknesses in regulatory enforcement diminish the mitigating effects of stricter financial-market regulation. We find that, irrespective of previous business ties with the target firm, target prices become more optimistic (and, as a consequence, less accurate) in the run-up to an investment banking transaction for target firms located in countries with weaker enforcement regimes. In contrast, for firms in countries with stronger enforcement regimes, we observe the opposite to be the case. Furthermore, we find that analysts’ optimistic biases have been mitigated, but not fully eliminated, since the implementation of the European Markets in Financial Instruments Directive (MiFID) in 2007 in low-enforcement countries. Overall, our results demonstrate that reducing country-level differences in enforcement constitute a significant factor in effectively regulating analysts’ conflicts of interest, and in improving investor protection within the EU.

Suggested Citation

  • Benno Kammann & Jörg Prokop, 2022. "A view to a deal: the effect of upcoming investment banking transactions on financial analysts’ target price estimates," The European Journal of Finance, Taylor & Francis Journals, vol. 28(16), pages 1599-1620, November.
    • Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1599-1620
    DOI: 10.1080/1351847X.2021.1990977
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2021.1990977
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2021.1990977?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1599-1620. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.