Independent and Affiliated Analysts: Disciplining and Herding
The Accounting Review · 2017 · Volume 92 · Issue 4
Abstract
The paper investigates strategic interactions between an independent analyst and an affiliated analyst in the context of issuing stock recommendations. Compared to the independent analyst, the affiliated analyst has superior information, but faces a conflict of interest. I show that the independent analyst disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst to improve his recommendation accuracy. Because of the affiliated analyst's conflict of interest, the value the independent analyst expects to derive from hisex postherding option is endogenous and can motivate him to acquire more information up front. As a result, herding and disciplining not only coexist, but also mutually reinforce each other. That is, there is an endogenous complementarity between the independent analyst'sex antedisciplining role and hisex postherding behavior in equilibrium.
Keywords
independent analysts, affiliated analysts, disciplining, herding
Enable JavaScript for citation tools and additional paper interactions.