Publication Type

Journal Article

Publication Date

7-2011

Abstract

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.

Keywords

Analysts, Regulation, Conflict-of-interest, Global Settlement, Investment bank, Analyst bias

Discipline

Accounting

Research Areas

Financial Performance Analysis

Publication

Journal of Accounting, Auditing and Finance

Volume

27

Issue

4

First Page

443

Last Page

470

ISSN

0148-558X

Identifier

10.1177/0148558X11409159

Publisher

SAGE Publications (UK and US)

Additional URL

http://doi.org./10.1177/0148558X11409159

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