Does Analyst Stock Ownership Affect Reporting Behavior?

Rick Johnston ()
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Rick Johnston: Krannert School of Management, Purdue University, 403 W. State Street, West Lafayette, IN 47907, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2013, vol. 16, issue 02, 1-39

Abstract: An analyst who owns stock in the company she covers may be tempted to protect or enhance her personal interests. This paper examines how this potential conflict of interest affects the reporting of sell-side analysts by identifying and collecting two samples, the first from Securities and Exchange Commission (SEC) Form 144 filings, and the second from voluntary ownership disclosures. Ordered probit analyses show that owning analyst recommendations are slightly more cautious than those of the control analysts. There is little robust evidence that stock ownership leads to optimistic analyst reporting, however findings indicate that analysts who are consistently optimistic are owners. The results are consistent with a conclusion that analyst stock ownership, unlike other potential incentives, may not be a significant concern since in many cases multiple nonowning analysts also provide reports. Being an outlier potentially reduces any benefit to the owning analyst and risks her personal reputation. In the absence of a detrimental effect, ownership offers a potential benefit as a credible signal of an analyst's conviction in a company's prospects.

Keywords: Analyst; incentives; 144; stock ownership; capital markets; G24; G29; D82; D84 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091513500082

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