Critical Finance Review > Vol 11 > Issue 3-4

Analyst Recommendations Respond More Symmetrically to Major News After Regulation FD and the Global Settlement: A Replication and Extension of Conrad, Cornell, Landsman, and Rountree (2006)

Yu-An Chen, Rutgers Business School, USA, y.a.chen@rutgers.edu , Dan Palmon, Rutgers Business School, USA, dpalmon@business.rutgers.edu
 
Suggested Citation
Yu-An Chen and Dan Palmon (2022), "Analyst Recommendations Respond More Symmetrically to Major News After Regulation FD and the Global Settlement: A Replication and Extension of Conrad, Cornell, Landsman, and Rountree (2006)", Critical Finance Review: Vol. 11: No. 3-4, pp 473-504. http://dx.doi.org/10.1561/104.00000118

Publication Date: 10 Aug 2022
© 2022 Yu-An Chen and Dan Palmon
 
Subjects
 
Keywords
G24M48
AnalystsRecommendationsRegulation FDGlobal settlement
 

Share

Download article
In this article:
1. Introduction 
2. Empirical Work 
3. Probit Results 
4. Discussion of Results 
5. Additional Tests 
6. Conclusion 
Appendix 
References 

Abstract

This paper confirms Conrad et al.’s (2006) pre-2000 evidence that analysts are more likely to revise recommendations after major news and downgrade more often than upgrade their recommendations following major negative news. Regulation FD in 2000 and the Global Settlement in 2003 reshaped analysts’ information environment. Regulation FD curtails private information channels between analysts and firm managers. The Global Settlement boosts analyst independence and curbs conflicts of interest through enhanced disclosures regarding analysts’ ratings and the mandated separation of brokerage firms’ research and investment banking activities. Extending Conrad et al.’s (2006) work, this paper shows that analysts react to major news through recommendation revisions as if they have private information even under Regulation FD. However, analysts’ recommendations respond more symmetrically to major news after Regulation FD and the Global Settlement, which supports that these regulatory efforts make analysts more unbiased in releasing their private information following major news.

DOI:10.1561/104.00000118