Publication Type

Journal Article

Version

submittedVersion

Publication Date

12-2019

Abstract

The Global Settlement, along with related regulations in the early 2000s, prohibits the use of investment banking revenue to fund equity research and compensate equity analysts. We find that all-star analysts from investment banks are more likely to exit the profession or move to the buy side after the regulations. The departed star analysts’ earnings revisions and stock recommendations are more informative than those of the remaining analysts who followed the same companies. To the extent that star analysts are superior to their nonstar counterparts in terms of research ability and ability to inform the market, the exit of star analysts represents a brain drain in the sell-side equity research industry. These results are consistent with the view that the regulations introduced to protect equity investors have unintended adverse effects on the investors due to a brain drain in investment banks.

Keywords

Analysts, Turnover, Brain Drain, The Global Settlement, Policy and Regulations, Investment Banks

Discipline

Accounting | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Financial Performance Analysis

Publication

Management Science

Volume

65

Issue

12

First Page

5766

Last Page

5784

ISSN

0025-1909

Identifier

10.1287/mnsc.2018.3182

Publisher

INFORMS (Institute for Operations Research and Management Sciences)

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1287/mnsc.2018.3182

Download

Share

COinS