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Discussion Paper Details

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Title: Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors

Author(s): Alexander P. Ljungqvist, Felicia Marston, Laura T Starks, Kelsey D. Wei and Hong Yan

Publication Date: April 2005

Keyword(s): analyst forecast accuracy, analyst recommendations, banking relationships, conflicts of interest, institutional investors and investment banking

Programme Area(s): Financial Economics

Abstract: Because sell-side analysts are dependent on institutional investors for performance ratings and trading commissions, we argue that analysts are less likely to succumb to investment banking or brokerage pressure in stocks highly visible to institutional investors. Examining a comprehensive sample of analyst recommendations over the 1994-2000 period, we find that analysts? recommendations relative to consensus are positively associated with investment banking relationships and brokerage pressure, but negatively associated with the presence of institutional investor owners. The presence of institutional investors is also associated with more accurate earnings forecasts and more timely re-ratings following severe share price falls.

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Bibliographic Reference

Ljungqvist, A, Marston, F, Starks, L, Wei, K and Yan, H. 2005. 'Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5001