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Sell-Side Analyst Research and Reported Conflicts of Interest


  • We thank an anonymous referee for valuable comments and suggestions. Furthermore, we thank Andreas Walter, Hannes Wagner and seminar participants at the 2011 Conference of the German Finance Association (DGF), the Annual Congress 2011 of the Verein für Socialpolitik, the IFABS 2011 Conference in Rome, and the 2012 Campus for Finance Research Conference, for helpful comments.


Using a unique dataset of conflicts of interest reported by a large investment bank, we examine the relationship between conflicts of interests and sell-side analysts’ behaviour in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties with a subject company is positively associated with optimism in target prices and recommendations. Furthermore, the results provide some indication that stocks for which conflicts of interests exist earn lower risk-adjusted returns than unconflicted stocks. However, we find no evidence that investors discount the value of sell-side analysts’ research with respect to the prevailing level of conflicts.

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