Download or read book Conflict of Interest Reforms and Investment Bank Analysts Research Biases written by Yuyan Guan and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the consequences of the series of reforms targeting investment-banking-related conflicts of interest. We compare and contrast optimism biases in analysts' stock recommendations and earnings forecasts across different types of analyst firms in the post-reform period 2004-2007 versus the pre-reform period 1998-2001. We document a significant reduction in the relative optimism of sanctioned investment bank analysts' stock recommendations, but not their earnings forecasts. Moreover, we find little change in the profitability of their stock recommendations, but detect a drop in the accuracy of earnings forecasts made by investment bank analysts. In sum, the reforms achieve the objective of mitigating the apparent optimism in investment bank stock recommendations, but they do not provide benefit to investors in terms of more profitable recommendations or more accurate earnings forecasts.

Download or read book Conflict of Interest Reforms and Brain Drain in Investment Banks written by Yuyan Guan and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Reforms on analyst conflicts of interest prohibit the use of investment banking revenue to fund equity research and compensate equity analysts. After the reforms, we find that star analysts from investment banks are more likely to exit the profession and move to the buy side than before. The departed star analysts' research is more accurate and informative than the remaining analysts who followed the same companies. These results are consistent with the reforms causing a brain drain in investment banks and potentially having an adverse effect on the consumers of the departed stars' research and the information environment of the companies followed by these stars.

Download or read book Do Analyst Conflicts Matter Evidence from Stock Recommendations written by Anup Agrawal and published by . This book was released on 2007 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether conflicts of interest with investment banking and brokerage induce sell-side analysts to issue optimistic stock recommendations and, if so, whether investors are misled by such biases. Using quantitative measures of potential conflicts constructed from revenue breakdowns of analyst employers, we find that the level of analysts' stock recommendations is indeed positively related to the magnitude of the conflicts they face. The optimistic bias stemming from investment banking conflict was especially pronounced during the late-1990s stock market bubble. However, evidence from the response of stock prices and trading volumes to upgrades and downgrades suggests that the market recognizes analyst conflicts and properly discounts analyst opinions. This pattern persists even during the bubble period, contrary to popular belief that investors threw caution to the wind during the bubble. Moreover, the one-year performance of revised recommendations is unrelated to the magnitude of conflicts. Overall, our findings do not support the view that conflicted analysts are able to systematically mislead investors with optimistic stock recommendations.

Download or read book Conflict of Interest and the Credibility of Underwriter Analyst Recommendations written by Roni Michaely and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public. These quot;booster shots,quot; as they are called in the financial press, may constitute a conflict of interest between an investment bank's fiduciary responsibility to its investing clients (to make accurate recommendations) and its incentive to market the stocks it underwrites. Indeed, we show that the stocks that underwriters recommend perform poorly (compared to quot;buyquot; recommendations by unaffiliated underwriters) prior to, at the time of, and subsequent to the recommendation date. Our results are evidence of the substantial conflicts of interest inherent in the different functions investment bankers perform, and demonstrate that these conflicts bias their views and recommendations of the firms they take public. We show that the market does not recognize the full extent of this bias.

Download or read book Controlling Conflicts of Interest written by Ahmed E. Taha and published by . This book was released on 2005 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Much attention is being focused on the conflicts of interest of many research analysts' who recommend stocks for investors. These research analysts work for financial institutions that also have investment banking departments. As a result, these analysts have faced great pressure to write positive research reports about companies with which their employers have current or prospective investment banking business. Unfortunately this pressure has resulted in analysts giving biased recommendations in favor of these companies, harming investors who relied on these recommendations.In response to this bias, the Securities and Exchange Commission, other regulatory organizations, and the courts have recently imposed a number of rules and regulations on research analysts. These reforms are targeted at reducing and publicly disclosing analysts' conflict of interests. To test whether these reforms are likely to be successful in reducing analysts' bias, this Article empirically examines the behavior of another group of professionals - movie critics - who are in a situation with many parallels to research analysts. Many prominent movie critics now regularly review movies that are distributed by subsidiaries of the critics' parent companies. Despite these parallels, this Article finds no systematic bias in these critics' movie reviews. This lack of bias can be attributed to significant differences between the organizational structure and financial incentives facing movie critics and those facing research analysts. Because many of the recent reforms targeted at research analysts will make their organizational structure and financial incentives more like those of movie critics, this Article provides empirical support for the conclusion that such reforms will reduce research analysts' bias. However, other of the reforms, such as those mandating public disclosure of the analysts' conflicts of interest, may be unnecessary or even harmful to investors.

Download or read book Conflicts of Interest and Analyst Behavior written by Armen Hovakimian and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent efforts of regulators have helped neutralize analysts' conflict of interest. Analysts tended to make overly optimistic earnings forecasts prior to Regulation FD and the Global Analyst Research Settlement. Regulation FD made analysts less dependent on insider information and, thereby, diminished analysts' motives to inflate their forecasts. The impact of Regulation FD is more apparent for firms with less informational transparency. The Global Settlement had an even bigger impact on analyst behavior. After the Global Settlement, the mean forecast bias declined significantly, whereas the median forecast bias essentially disappeared. These results are not limited to 12 banks covered by the Global Settlement, but are similar for all analysts.

Download or read book Analyst Conflicts and Research Quality written by Anup Agrawal and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how the quality of stock analysts' forecasts is related to conflicts of interest from investment banking and brokerage. We consider four aspects of forecast quality: accuracy, bias and frequency of revision of quarterly earnings forecasts, and relative optimism in long-term earnings growth (LTG) forecasts. Using a unique dataset that contains the revenue breakdown of analysts' employers among investment banking, brokerage, and other businesses over the 1994-2003 period, we establish two main findings. First, there appears to be no relation between accuracy or bias in quarterly forecasts and several measures of conflict severity, after controlling for forecast age, firm resources and analyst workloads. This result holds even for technology stocks and during the late 1990s stock market boom. Second, relative optimism in LTG forecasts and the frequency of revision of quarterly earnings forecasts are positively related to the importance of brokerage business to analysts' employers. Additional tests suggest that quarterly forecast revisions occur for purposes other than purely to provide investors with timely, accurate forecasts. Overall, our results on LTG forecasts and forecast revision frequency suggest that brokerage conflicts are important in shaping analysts' forecasting behavior.

Download or read book Investment Banking and Analyst Objectivity written by Adam C. Kolasinski and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We find evidence that conflicts of interest arising from Mamp;A relations influence analysts' recommendations, corroborating regulators' and practitioners' suspicions in a setting, i.e. Mamp;A relations, not previously examined in research on analyst conflicts. In addition, the Mamp;A context allows us to disentangle the conflict of interest effect from selection bias. We find that analysts affiliated with acquirer advisors upgrade acquirer stocks around Mamp;A deals, even around all-cash deals, wherein selection bias is unlikely. Also consistent with conflict of interest, but not selection bias, target-affiliated analysts publish optimistic reports about acquirers after, but not before, the exchange ratio of an all-stock deal is set.

Download or read book Conflict of Interest and the Credibility of Underwriters Analyst Recommendations written by Roni Michaely and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public. We show that stocks that underwriter analysts recommend perform more poorly than quot;buyquot; recommendations by unaffiliated brokers prior to, at the time of, and subsequent to the recommendation date. We conclude that the recommendations by underwriter analysts show significant evidence of bias. We show also that the market does not recognize the full extent of this bias. The results suggest a potential conflict of interest inherent in the different functions that investment bankers perform.

Download or read book Handbook Of Financial Econometrics Mathematics Statistics And Machine Learning In 4 Volumes written by Cheng Few Lee and published by World Scientific. This book was released on 2020-07-30 with total page 5053 pages. Available in PDF, EPUB and Kindle. Book excerpt: This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.

Download or read book Conflict of Interest and the Credibility of Underwriter Analyst Recommendations written by R. Michaely and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public. We show that stocks that underwriter analysts recommend perform more poorly than `buy` recommendations by unaffiliated brokers prior to, at the time of, and subsequent to the recommendation date. We conclude that the recommendations by underwriter analysts show significant evidence of bias. We show also that the market does not recognize the full extent of this bias. The results suggest a potential conflict of interest inherent in the different functions that investment bankers perform.

Download or read book Conflict or Credibility written by James C. Spindler and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper argues that, contrary to conventional wisdom, conflicts of interest among equities research analysts (i.e., where investment banks would offer positive analyst research in quid pro quos for underwriting business) were beneficial to the capital markets. First, conflicted analyst research credibly signaled positive inside information that is otherwise too costly to communicate under Securities Act liability, correcting informational asymmetries. Second, conflicted analyst research mitigated agency costs between issuer and underwriter by allowing the underwriter to credibly commit to exerting more effort than the underwriter would prefer. Third, analyst research quid pro quos took the form of a competitive bidding market among underwriters, and may have improved competition in the underwriting industry. In light of these conclusions, recent reforms prohibiting analyst conflicts of interest are counterproductive. Preferable modes of regulation include liberalizing Securities Act liability, increasing mandatory disclosure of conflicts, and increasing fraud penalties.

Download or read book Conflicts of Interest written by Luc Thévenoz and published by Kluwer Law International B.V.. This book was released on 2007-01-01 with total page 422 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conflicts of interest arise naturally in all walks of life, particularly in business life. As general and indeed inevitable phenomena, conflicts of interest should not be prohibited but properly managed. This book presents indepth analysis of such management in three areas of corporate governance where the conflict-of-interest problems are particularly acute: executive compensation, financial analysis, and asset management. ""Conflicts of Interest"" presents the results of a two-year-long research project bringing together academics and practitioners in both law and finance from Europe and the.

Download or read book A Behavioral Approach to Asset Pricing written by Hersh Shefrin and published by Elsevier. This book was released on 2008-05-19 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. Incorporating the latest research and theory, Shefrin offers both a strong theory and efficient empirical tools that address derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book provides a series of examples to illustrate the theory. The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition

Download or read book Ethics in Investment Banking written by John N. Reynolds and published by Springer. This book was released on 2011-09-28 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis focused unprecedented attention on ethics in investment banking. This book develops an ethical framework to assess and manage investment banking ethics and provides a guide to high profile concerns as well as day to day ethical challenges.

Download or read book Conflicts of Interest in the Financial Services Industry written by Andrew Crockett and published by Centre for Economic Policy Research. This book was released on 2003 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: The fifth report in this series focuses on conflicts of interest that arise when a firm combines multiple lines of business, creating multiple interests. Conflicts between research and underwriting in investment banking and between auditing and consulting in accounting firms are investigated, as are the problems that arise from rating agencies providing consulting services and from universal banks combining commercial and investment banking. In the recent stock market collapse, confidence in the financial industry was shaken by numerous scandals. Beginning with Enron in 2001, scandals brought about the demise of prominent financial figures, damaged the reputation of premiere firms and destroyed the global accounting giant Arthur Andersen. Central to this crisis was the exploitation of conflicts of interest. Research analysts at investment banks were found to be distorting information at the behest of underwriting departments eager to promote new issues. Auditors appeared to sanction misleading accounting in order to gain business for the consulting side of their firms. Policy response in the United States was quick. Large fines were levied and regulators compelled the separation of financial security function, constraining financial conglomerates. But are these new regulations and safeguards adequate protection? What costs do they impose on the industry? This fifth title in the ICMP/CEPR series of Geneva Reports on the World Economy examines the problem of conflicts of interest in the financial system. Conflicts of interest lead to a decrease in information that makes it harder for the system to provide savers wit the accurate, essential information that induces them to provide credit to borrowers. This study focuses on conflicts of interest that arise when a firm combines multiple lines of business, creating multiple interests. Conflicts between research and underwriting in investment banking and between auditing and consulting in accounting firms are investigated, as are the problems that arise from rating agencies providing consulting services and from universal banks combining commercial and investment banking. Determining the appropriate remedy for a conflict is a challenge because the elimination of conflicts may also eliminate benefits from economies of scope. This study examines five generic remedies: market discipline, regulation for increased transparency, supervisory oversight, separation of financial activities by function, and socialization of the collection and distribution of information. The authors apply this framework to assess critically the Sarbanes-Oxley Act and the Global Settlement between American regulators and investment banks.

Download or read book Analyzing the Analysts written by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and published by . This book was released on 2001 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: