The Effectiveness of Reputation as a Disciplinary Mechanism in Sell-Side Research
The Review of Financial Studies, 2009

In this study, Associate Professor Ayako Yasuda and co-author Lily Fang from INSEAD examine whether the quality differentials in earnings forecasts between reputable and non-reputable analysts vary with the severity of conflicts of interest.

The authors measure personal reputation using the Institutional Investor All-American (AA) awards, and bank reputation using Carter-Manaster ranks. While both personal and bank reputation are associated with higher quality forecasts overall, their effectiveness against conflicts of interest differs. The severity of conflicts has a negative and significant effect on the performance of non-AAs at top-tier banks relative to other analysts, while it has a positive and significant effect on the performance of AAs at top-tier banks relative to others. Thus personal reputation is an effective disciplinary device against conflicts of interest, while bank reputation alone is not.