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ARTICLE IN PRESS

Journal of Financial Economics 85 (2007) 490–517 www.elsevier.com/locate/jfec Comparing the stock recommendation performance of investment banks and independent research firms$
Brad M. Barbera, Reuven Lehavyb, Brett Truemanc,Ã a Graduate School of Management, University of California, Davis, CA 95616, USA b Ross School of Business, University of Michigan, Ann Arbor, MI 48109, USA c Anderson School of Management, University of California, Los Angeles, CA 90095, USA
Received 27 September 2004; received in revised form 12 July 2005; accepted 19 September 2005
Available online 29 March 2006

Abstract
From January 1996 through June 2003, the average daily abnormal return to independent research firm buy recommendations exceeds that of investment bank buy recommendations by 3.1 basis points
(almost 8 percentage points annualized). Investment bank buy recommendation underperformance is more pronounced following the NASDAQ market peak (March 10, 2000) and strikingly so for buy recommendations on firms that recently conducted equity offerings. In contrast, investment bank hold and sell recommendations outperform those of independent research firms by 1.8 basis points daily (4 1 percentage points annualized). These results suggest reluctance by investment banks to
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downgrade stocks whose prospects dimmed during the bear market of the early 2000s, as claimed in the SEC’s Global Research Analyst Settlement. r 2006 Elsevier B.V. All rights reserved.
JEL classification: G12; G14; G24; G29
Keywords: Analyst; Recommendation; Investment bank; Independent research; Global Research Analyst
Settlement

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We would like to thank Mark Chen, Maureen McNichols, Rene Stulz, Beverly Walther, two anonymous referees, and participants at Carnegie Mellon, Columbia University, IESE Business School, MIT, Northwestern
University, the Universities of Chicago, North Carolina, and Waterloo, and the Federal Reserve Bank of
New York/Journal of

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