Brokerage firms' revenue and profitability of their recommendations: before and after 1999-2002
by Vivek Sharma
International Journal of Revenue Management (IJRM), Vol. 3, No. 3, 2009

Abstract: We examine how the research departments of brokerage firms may issue biased recommendations in order to boost the revenue of the investment banking departments of the brokerage firms during 1993-2006. We find that during 1993-2006, sanctioned brokerage firms' upgrades not only underperformed the upgrades of non-sanctioned brokerage firms, but they also earned negative abnormal returns. The degree of underperformance for sanctioned brokerage firms' upgrades was at the highest during 1999-2002. More surprisingly, the underperformance of upgrades continues in 2003-2006. We also find weak evidence of underperformance of upgrades in the period of 1993-1998.

Online publication date: Tue, 21-Jul-2009

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