Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the 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, SHROFF, A, SIVARAMAKRI, S
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Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/soa_research/1021
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spelling sg-smu-ink.soa_research-20202013-05-14T05:30:08Z Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations RANASINGHE, Tharindra SHROFF, A SIVARAMAKRI, S 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. 2012-01-01T08:00:00Z text https://ink.library.smu.edu.sg/soa_research/1021 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
Portfolio and Security Analysis
spellingShingle Accounting
Portfolio and Security Analysis
RANASINGHE, Tharindra
SHROFF, A
SIVARAMAKRI, S
Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the 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
SHROFF, A
SIVARAMAKRI, S
author_facet RANASINGHE, Tharindra
SHROFF, A
SIVARAMAKRI, S
author_sort RANASINGHE, Tharindra
title Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations
title_short Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations
title_full Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations
title_fullStr Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations
title_full_unstemmed Do Analyst Regulations Work? Evidence from the Impact of NASD Rule 2711 on the Liquidity Changes Surrounding Coverage Initiations
title_sort do analyst regulations work? evidence from the impact of nasd rule 2711 on the liquidity changes surrounding coverage initiations
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/soa_research/1021
_version_ 1770571522544500736