The 'Real' Value of Conflicted Analyst Coverage

This paper examines whether conflicted analyst research affects the firms under coverage. We develop a novel approach to identify a sample of firms whose coverage is mostly driven by analysts’ private incentives to generate investment banking revenue. We find that conflicted analyst coverage is recognized by investors and its loss has little adverse effect on information efficiency, capital investment, cost of capital, and equity issuance. Our results suggest that firms attain little benefit when offering investment banking business in exchange for analyst coverage.

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