Regulations and Brain Drain : Evidence from Wall Street Star Analysts' Career Choices

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)5766–5784
Journal / PublicationManagement Science
Volume65
Issue number12
Online published3 Jul 2019
Publication statusPublished - Dec 2019

Abstract

The Global Settlement, along with related regulations in the early 2000s, prohibits the use of investment banking revenue to fund equity research and compensate equity analysts. We find that all-star analysts from investment banks are more likely to exit the profession or move to the buy side after the regulations. The departed star analysts’ earnings revisions and stock recommendations are more informative than those of the remaining analysts who followed the same companies. To the extent that star analysts are superior to their non-star counterparts in terms of research ability and ability to inform the market, the exit of star analysts represents a brain drain in the sell-side equity research industry. These results are consistent with the view that the regulations introduced to protect equity investors have unintended adverse effects on the investors due to a brain drain in investment banks.

Research Area(s)

  • analysts, turnover, brain drain, the Global Settlement, Sarbanes–Oxley Act, policy and regulations, investment banks

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

Regulations and Brain Drain : Evidence from Wall Street Star Analysts' Career Choices. / Guan, Yuyan; Li, Congcong ; Lu, Hai; Wong, M. H. Franco.

In: Management Science, Vol. 65, No. 12, 12.2019, p. 5766–5784.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal