Investment Banking Relationships and Analyst Affiliation Bias: The Impact of the Global Settlement on Sanctioned and Non-Sanctioned Banks

47 Pages Posted: 14 Jan 2015 Last revised: 15 Feb 2017

See all articles by Shane A. Corwin

Shane A. Corwin

University of Notre Dame - Mendoza College of Business

Stephannie Larocque

University of Notre Dame - Mendoza College of Business

Mike Stegemoller

Baylor University

Date Written: February 15, 2017

Abstract

We examine the impact of the Global Settlement on affiliation bias in analyst recommendations. Using a broad measure of investment bank-firm relationships, we find a substantial reduction in analyst affiliation bias following the settlement for sanctioned banks. In contrast, we find strong evidence of bias both before and after the settlement for affiliated analysts at non-sanctioned banks. Our results suggest that the settlement led to an increase in the expected costs of issuing biased coverage at sanctioned banks, while concurrent self-regulatory organization rule changes were largely ineffective at reducing the influence of investment banking on analyst research at large non-sanctioned banks.

Keywords: Analysts, Recommendations, Investment Banking, Investment Banking Relationships

JEL Classification: G10, G24, G34, L14

Suggested Citation

Corwin, Shane A. and Larocque, Stephannie A. and Stegemoller, Michael A., Investment Banking Relationships and Analyst Affiliation Bias: The Impact of the Global Settlement on Sanctioned and Non-Sanctioned Banks (February 15, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2548771 or http://dx.doi.org/10.2139/ssrn.2548771

Shane A. Corwin (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

240 Mendoza College of Business
Notre Dame, IN 46556-0399
United States

Stephannie A. Larocque

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Michael A. Stegemoller

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4145 (Phone)

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