Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated with Mergers and Acquisitions Advisors

Adam C. Kolasinski and S. P. Kothari

Journal of Financial and Quantitative Analysis, 2008, vol. 43, issue 4, 817-842

Abstract: We find evidence that conflicts of interest arising from mergers and acquisitions (M&A) relations influence analysts' recommendations, corroborating regulators' and practitioners' suspicions in a setting, i.e., M&A relations, not previously examined in research on analyst conflicts. In addition, the M&A context allows us to disentangle the conflict of interest effect from selection bias. We find that analysts affiliated with acquirer advisors upgrade acquirer stocks around M&A deals, even around all-cash deals, in which selection bias is unlikely. Also consistent with conflict of interest but not selection bias, target-affiliated analysts publish optimistic reports about acquirers after, but not before, the exchange ratio of an all-stock deal is set.

Date: 2008
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