Interest Conflicts, Reputational Effects and Stock Price Efficiency
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| Title | Interest Conflicts, Reputational Effects and Stock Price Efficiency
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| Author | Zhou Mingshan Li Siguang and Lin Jing |
| Organization | University of Finance and Economics |
| Email | zhoumingshan@swufe.edu.cn, sandy2009@pku.edu.cn,linjing729@163.comSouthwestern |
| Key Words | Affiliated Advisor; Incentive Conflicts; Reputational Incentive; Stock Price Efficiency |
| Abstract | This paper constructs a two-period model of stock recommendations to investigate the mechanism how the interaction between analysts’ interest conflicts, incentive type heterogeneity and asymmetric information influences the information quality and stock price efficiency. The results show that due to non-neutral incentive and reputational concerns regarding “identification problems”, strategic reporting behavior will arise for both affiliated and independent analysts respectively. Analysts’ strategic reporting driven by distortion effects and reputational effects together with receiver skeptism from investors will lead to deteriorated information quality and excessive stock price volatility. Our results are independent of the non-strategic player assumption, and we also find that categorical ranking systems will help to reduce stock market volatility. These results provide theoretical supports for policies such as improving analyst’ compensation incentive system, strengthening information disclosure, establishing long-term tracking system and appropriate accountability system. |
| Serial Number | WP567 |
| Time | 2014-01-14 |
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