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Are Analysts’ Recommendations for Other Investment Banks Biased?


  • I thank two anonymous referees Gauri Bhat (AAA discussant), Liz Devos, Bill Elliott, Srinivasan Krishnamurthy, Stephannie Larocque, Rajesh Narayanan, Andrew Prevost Raghu Rau (editor), Keke Song (FMA discussant), and seminar participants at the University of New Mexico, the University of Texas at El Paso, AAA meetings, and FMA meetings for valuable comments. I would like to thank He Li, Shofiqur Rahman, and Jim Schneringer for providing excellent research assistance and Wendy Jennings for providing editing services. I gratefully acknowledge the contribution of Thomson Financial for providing earnings per share forecast data available through the Institutional Brokers Estimate System. This data have been provided as part of a broad academic program to encourage earnings expectations.


This paper provides evidence of a “Potential conflict of interest by equity analysts” who issue recommendations for investment banks that are related to their own bank through syndication. Analysts issue significantly more optimistic recommendations for investment banks with which their bank is syndicated. Recommending banks upgrade their recommendations just before a relation is initiated, suggesting that they use analyst optimism as a means of currying favor with the syndicate lead in hopes of being invited to join. It also appears that as part of a quid pro quo of sorts, relatively optimistic recommendations are rewarded with more syndicate appointments in the year after the recommendations.

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