The effects of MiFID II on sell-side analysts, buy-side analysts, and firms

Bingxu Fang (), Ole-Kristian Hope (), Zhongwei Huang () and Rucsandra Moldovan ()
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Bingxu Fang: University of Toronto
Ole-Kristian Hope: University of Toronto
Zhongwei Huang: University of London
Rucsandra Moldovan: Concordia University

Review of Accounting Studies, 2020, vol. 25, issue 3, No 2, 855-902

Abstract: Abstract This paper provides early but broad empirical evidence on MiFID II, which requires investment firms to unbundle investment research from other costs they charge to clients. Employing difference-in-differences matched-sample research designs with firm fixed effects, we find a decrease in the number of sell-side analysts covering European firms after MiFID II implementation, particularly for firms that are less important to the sell-side. However, research quality improves; specifically, individual analyst forecasts are more accurate and stock recommendations garner greater market reactions. In addition, sell-side analysts seem to cater more to the buy-side after MiFID II by providing industry recommendations along with stock recommendations. Importantly, we predict and find evidence that buy-side investment firms turn to more in-house research after MiFID II implementation. Equally interesting, buy-side analysts increase their participation and engagement in earnings conference calls, compared to the control group. We find some evidence that stock-market liquidity decreases post MiFID II.

Keywords: MiFID II; Financial services; Sell-side analysts; Buy-side research; Unbundling; Hard dollar; Europe (search for similar items in EconPapers)
JEL-codes: G00 G15 G30 G34 G38 K00 L50 M10 M20 M40 M41 M48 M49 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s11142-020-09545-w

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