Sell-Side Analyst Research and Reported Conflicts of Interest

Using a unique dataset of conflicts of interest reported by a large investment bank, we examine the relationship between conflicts of interests and sell-side analysts' behaviour in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties with a subject company is positively associated with optimism in target prices and recommendations. Furthermore, the results provide some indication that stocks for which conflicts of interests exist earn lower risk-adjusted returns than unconflicted stocks. However, we find no evidence that investors discount the value of sell-side analysts' research with respect to the prevailing level of conflicts.