4-1 (A73)

Does Syndicate Pressure Affect Analysts’ Incentive to Produce Information? Evidence from Recommended Firms’ Securities Class Action Lawsuits

 

Connie X. Mao

Temple University, USA

Wei-Ling Song

Louisiana State University Baton Rouge, USA

 

Using a sample of firms sued for financial reporting fraud, we document that syndicate pressure can taint unaffiliated analysts’ incentive to release negative information promptly. We find that analysts employed by co-manager syndicate banks, which do not have direct underwriting relationships with the recommended firms but rely on affiliated main banks to be in other deals, issue downgrades as late as those employed by the main banks that provide underwriting services to the recommended firms. On the other hand, analysts employed by co-lead syndicate banks and independent banks issue downgrade revisions significantly more promptly (by 62 days) than those of main banks. Global Settlement appears to improve analysts’ independence, particularly among main banks, which are subject to the greatest level of conflicts of interest, and co-manager syndicate banks, which are susceptible to syndicate pressure from main banks.