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

• 成果类型: Article
• 署名作者: Guan, Yuyan; Li, Congcong; Lu, Hai; Wong, M. H. Franco
• 署名单位: City University of Hong Kong; Duquesne University; University of Toronto; Peking University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2018.3182
• 发表日期: 2019
• 页码: 5766-5784
• 关键词: Analysts; turnover; Brain drain; the Global Settlement; Sarbanes-Oxley Act; policy and regulations; Investment banks

摘要

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 stack 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 nonstar 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.