The Real Effects of Analyst Research Quality: Evidence from the Adoption of the Broker Protocol

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Abstract

I provide empirical evidence that labour market frictions have an adverse effect on the quality of analyst research. Using the staggered, voluntary adoption of the Protocol for Broker Recruiting (Protocol) since 2004, I show that, without non-compete agreements, financial analysts produce more accurate forecasts and exert greater efforts in updating their research more frequently. Consistent with the notion that information asymmetry in the capital market are lower in the post-Protocol period, I provide empirical evidence and argue that the research coverage by Protocol members enables managers to access capital and extend their investment opportunities. My findings suggest that analyst coverage by Protocol members has a favourable effect on investment in innovative projects, production capacity and acquisitions.

Original languageEnglish
Pages (from-to)237-261
Number of pages25
JournalAustralian Accounting Review
Volume33
Issue number3
DOIs
Publication statusPublished - Sept 2023
Externally publishedYes

Keywords

  • Banking relationships
  • Career concerns
  • Conflicts-of-interest
  • Coverage
  • Earnings forecasts
  • Fair disclosure
  • Global settlement
  • Information
  • Investment
  • Market

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