Analyst Conflicts and Research Quality

Anup Agrawal () and Mark A. Chen ()
Additional contact information
Anup Agrawal: Culverhouse College of Business, University of Alabama Tuscaloosa, AL 35487-0224, USA
Mark A. Chen: Department of Finance, Robinson College of Business, Georgia State University Atlanta, GA 30303-3083, USA

Quarterly Journal of Finance (QJF), 2012, vol. 02, issue 02, 1-40

Abstract: This paper examines whether the quality of stock analysts' forecasts is related to conflicts of interest from their employers' investment banking (IB) and brokerage businesses. We consider four aspects of forecast quality: accuracy, bias, and revision frequency of quarterly earnings per share (EPS) forecasts and relative optimism in long-term earnings growth (LTG) forecasts. Using a unique dataset that contains the annual revenue breakdown of analysts' employers among IB, brokerage, and other businesses, we uncover two main findings. First, accuracy and bias in quarterly EPS forecasts appear to be unrelated to conflict magnitudes after controlling for forecast age, firm resources, and analyst characteristics. Second, relative optimism in LTG forecasts and the revision frequency of quarterly EPS forecasts are positively related to the importance of brokerage business to analysts' employers. Additional tests suggest that the frequency of quarterly forecast revisions is positively related to analysts' trade generation incentives. Our findings suggest that reputation concerns keep analysts honest with respect to short-term earnings forecasts but not LTG forecasts. In addition, conflicts from brokerage appear to play a more important role in shaping analysts' forecasting behavior than has been previously recognized.

Keywords: Stock analysts; security analysts; analyst conflicts; analyst forecasts; investment banking; brokerage commissions; conflicts of interest (search for similar items in EconPapers)
Date: 2012
References: View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139212500103
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:02:y:2012:i:02:n:s2010139212500103

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139212500103

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().