Mutual Funds and Affiliated Analyst Recommendations : Optimism or Information Sharing ?

This study examines whether the group affiliation between asset management firms and brokerage firms influences sell-side analyst recommendations. Using fund holdings data of mutual funds firms belonging to business groups in Korea (i.e., chaebols), we examine whether affiliated analysts differently treat stocks held by fund management firms in the same chaebol from other stocks. Our main results show that analysts provide more accurate forecasts on affiliated stocks, indicating that analysts take advantage of information on those stocks shared with their affiliated fund managers. Although our overall results support the information sharing argument, analysts are found to be selectively optimistic about highly valuable stocks to affiliated fund managers.