Corporate Governance, Stock Price Crash Risks, Stock Price Synchronicity, Analyst and Institutional Investor’s Behavior, Political Connections
Financial Management, Investment, Financial Statement Analysis, Main Literature of Corporate Finance
Published in：JOURNAL OF ACCOUNTING AUDITING AND FINANCE
Abstract：We contend that mutual-fund-affiliated analysts have conflicts of interest in their role of information production. Similar to the investment-bank-affiliated analysts (Malmendier & Shanthikumar, 2014), mutual-fund-affiliated analysts are very likely to speak in two tongues, issuing optimism-biased recommendations to please their mutual fund clients due to the clients’ holdings of the stocks but less optimistic forecasts for their covered firms to provide firm-specific information for mutual funds. The net effect of these mutual-fund-affiliated analysts’ conflicting actions is not clear. We use a unique Chinese dataset that discloses the business affiliations between mutual funds and brokerage firms through commission allocations to examine whether mutual-fund-affiliated analysts produce more (or less) firmspecific information in their research compared with non-affiliated analysts. Our results indicate that mutual-fund-affiliated analysts produce more firm-specific information, manifested by lower stock price synchronicity for the firms they cover. We further find that the mutual-fund-affiliated analyst effects are more pronounced for stocks that represent significant exposure to an affiliated mutual fund’s investment, where mutual funds presumably need more firm-specific information to make investment decisions. Finally, we document that mutual-fund-affiliated analysts conduct more site visits on the stocks held by their mutual fund clients, which explains the greater information dissemination by mutual-fundaffiliated analysts.
Keywords：affiliated analyst, stock price synchronicity, mutual fund, analyst coverage
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