Mutual fund affiliated analysts and stock price synchronicity: Evidence from China

We contend that mutual-fund-affiliated analysts have conflicts of interest in their role of information production. Similar to the investment-bank-affiliated analysts (Malmendier & Shanthikumar, 2014), mutual-fund-affiliated analysts are very likely to speak in two tongues, issuing optimism-biased recommendations to please their mutual fund clients due to the clients’ holdings of the stocks but less optimistic forecasts for their covered firms to provide firm-specific information for mutual funds. The net effect of these mutual-fund-affiliated analysts’ conflicting actions is not clear. We use a unique Chinese dataset that discloses the business affiliations between mutual funds and brokerage firms through commission allocations to examine whether mutual-fund-affiliated analysts produce more (or less) firm-specific information in their research compared with non-affiliated analysts. Our results indicate that mutual-fund-affiliated analysts produce more firm-specific information, manifested by lower stock ...