Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations

We investigate the net effect of NASD Rule 2711 on information intermediary role of analysts by examining the market reaction and changes in liquidity surrounding coverage initiations in the pre- and post- regulation periods. This regulation was intended to eliminate conflict of interests faced by a...

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Main Authors: RANASINGHE, Tharindra, Sivaramakrishnan, K., Shroff, A.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/soa_research/891
http://aaahq.org/AM2012/abstract.cfm?submissionID=959
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spelling sg-smu-ink.soa_research-18902012-10-03T03:54:03Z Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations RANASINGHE, Tharindra Sivaramakrishnan, K. Shroff, A. We investigate the net effect of NASD Rule 2711 on information intermediary role of analysts by examining the market reaction and changes in liquidity surrounding coverage initiations in the pre- and post- regulation periods. This regulation was intended to eliminate conflict of interests faced by analysts with investment banking ties, but it has in essence blocked information flow between research and investment banking functions. We document that coverage initiations in the post-regulation period evoke stronger market reactions and greater liquidity improvements for firms with high pre-existing analyst coverage. These results indicate that the benefits of NASD Rule 2711 are mainly confined to firms with richer information environments. Further analyses reveal that these results are more pronounced for growth firms, suggesting that the benefits of the regulation are greater when the potential for conflict of interests is higher. 2012-08-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/891 http://aaahq.org/AM2012/abstract.cfm?submissionID=959 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
Corporate Finance
spellingShingle Accounting
Corporate Finance
RANASINGHE, Tharindra
Sivaramakrishnan, K.
Shroff, A.
Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
description We investigate the net effect of NASD Rule 2711 on information intermediary role of analysts by examining the market reaction and changes in liquidity surrounding coverage initiations in the pre- and post- regulation periods. This regulation was intended to eliminate conflict of interests faced by analysts with investment banking ties, but it has in essence blocked information flow between research and investment banking functions. We document that coverage initiations in the post-regulation period evoke stronger market reactions and greater liquidity improvements for firms with high pre-existing analyst coverage. These results indicate that the benefits of NASD Rule 2711 are mainly confined to firms with richer information environments. Further analyses reveal that these results are more pronounced for growth firms, suggesting that the benefits of the regulation are greater when the potential for conflict of interests is higher.
format text
author RANASINGHE, Tharindra
Sivaramakrishnan, K.
Shroff, A.
author_facet RANASINGHE, Tharindra
Sivaramakrishnan, K.
Shroff, A.
author_sort RANASINGHE, Tharindra
title Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
title_short Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
title_full Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
title_fullStr Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
title_full_unstemmed Regulating Analysts: NASD Rule 2711's Impact on Market Reaction and Liquidity Changes Surrounding Coverage Initiations
title_sort regulating analysts: nasd rule 2711's impact on market reaction and liquidity changes surrounding coverage initiations
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/soa_research/891
http://aaahq.org/AM2012/abstract.cfm?submissionID=959
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