Desmarais Global Finance Research Centre


Desmarais Global Finance Research Centre

When do banks listen to their analysts?
Evidence from mergers and acquisitions

Michelle Lowry
Penn State University

All are cordially invited to attend.

Date: Friday, November 6, 2009
Time: 10:00 AM – 11:30 AM
Samuel Bronfman Bldg.
100 Sherbrooke Street West
Rm. 002



This paper focuses on conflicts of interest and information sharing within investment banks that are advising client firms in acquisitions. Looking at the advisor bank’s recommendations of the acquiring firm, results suggest that information sharing from the investment banking division increases the value-relevance of analyst recommendations. Consistent with these recommendations being more value-relevant, trading divisions within the advisor bank are more likely to listen to their own analysts in the period following the merger announcement. However, additional tests show that this relation only holds among banks that are less susceptible to conflicts of interest from the investment banking division. Finally, banks’ strategy of only listening to their analyst recommendations in times when analysts are most likely to have value-relevant information and in cases where analysts’ likely conflicts of interest are lowest appears to be a profitable one.