Do Sell-Side Analysts Give Better Ratings To Companies They Want To Work For?

Most investors understand that sell-side analysts have a long bias, even with a ‘Chinese wall’ in effect they understand that their employers benefit from a generally sunny outlook. But that only takes an analyst’s current employer into account. According to research by UCLA Anderson School of Management PhD student Ben Lourie, analysts who go to work for companies they had been covering issue more optimistic reports, and more reports in general, in the year before they switch jobs.

“During this final year, I find that the revolving-door analysts alter their forecasts, target prices and recommendations in a direction which suggests that they are attempting to gain favor with their would-be employers. The findings raise concerns about their independence and...