Independent and Affiliated Analysts: Disciplining and Herding

The Accounting Review (doi: 10.2308/accr-51631)

Posted: 19 Jan 2017

See all articles by Hao Xue

Hao Xue

Duke University - Fuqua School of Business

Date Written: 2016

Abstract

The paper investigates strategic interactions between an independent analyst and an affiliated analyst in the context of issuing stock recommendations. Compared to the independent analyst, the affiliated analyst has superior information but faces a conflict of interest. I show that the independent analyst disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst to improve his recommendation accuracy. Because of the affiliated analyst's conflict of interest, the value the independent analyst expects to derive from his ex-post herding option is endogenous and can motivate him to acquire more information up front. As a result, herding and disciplining not only coexist but also mutually reinforce each other. That is, there is an endogenous complementarity between the independent analyst's ex-ante disciplining role and his ex-post herding behavior in equilibrium.

Keywords: Independent Analysts, Affiliated Analysts, Disciplining, Herding

Suggested Citation

Xue, Hao, Independent and Affiliated Analysts: Disciplining and Herding (2016). The Accounting Review (doi: 10.2308/accr-51631), Available at SSRN: https://ssrn.com/abstract=2900480

Hao Xue (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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