Which Side Are You On? How Institutional Positions Affect Financial Analysts' Incentives

摘要

Recent scandals involving financial analysts shed light on conflicts of interest in the stock market. Financial analysts were accused of releasing dishonest "buy" recommendations for stocks and biased earnings forecasts. In 2002, the New York attorney general released internal e-mails obtained during his investigation, in which analysts disparaged the very stocks they were urging outside fund managers or investors to buy. In the following months, a number of analysts received lifetime suspension from the securities business, and several banks had to pay severe penalties. Interestingly, the problem has, in most cases, been treated as an individual matter, as if it only concerned deviant behaviors by certain individuals. But it can also be viewed as a problem of rule. In this study, I endeavor to provide evidence that analysts' behaviors are deeply influenced by the organizations to which they belong and, hence, are influenced by the regulations governing these organizations. In other words, using the terminology of Saeed Parto (2005), the institutions implicated when an analyst decides to release intentionally biased earnings forecasts are regulative institutions rather than behavioral institutions.