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The effects of MiFID II on sell-side analysts, buy-side analysts, and firms

Fang, Bingxu; Hope, Ole-Kristian; Huang, Zhongwei; Moldovan, Rucsandra
Journal article, Peer reviewed
Accepted version
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Fang_et_al_2020.pdf (805.2Kb)
URI
https://hdl.handle.net/11250/2992577
Date
2020
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  • Scientific articles [2147]
Original version
Review of accounting studies. 2020, 25, 855-902.   10.1007/s11142-020-09545-w
Abstract
This paper provides early but broad empirical evidence on MiFID II, which requires investment firms to unbundle investment research from other costs they charge to clients. Employing difference-in-differences matched-sample research designs with firm fixed effects, we find a decrease in the number of sell-side analysts covering European firms after MiFID II implementation, particularly for firms that are less important to the sell-side. However, research quality improves; specifically, individual analyst forecasts are more accurate and stock recommendations garner greater market reactions. In addition, sell-side analysts seem to cater more to the buy-side after MiFID II by providing industry recommendations along with stock recommendations. Importantly, we predict and find evidence that buy-side investment firms turn to more in-house research after MiFID II implementation. Equally interesting, buy-side analysts increase their participation and engagement in earnings conference calls, compared to the control group. We find some evidence that stock-market liquidity decreases post MiFID II.
Publisher
Springer
Journal
Review of accounting studies

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