Author Abstract
In traditional markets, the price mechanism directs the flow of resources and governs the process through which supply and demand are brought into equilibrium. In the investment-research industry, broker votes perform these functions. Using detailed clinical data from a midsized investment bank for the years 2004 to 2007, we present evidence that institutional investors use broker votes to budget future aggregate commission payments across brokerage firms; that these votes are responsive to actions that brokerage-house analysts take to communicate with client investors; and that brokerage firms use client-supplied votes as a quasi allocation base to indirectly reward individual analysts for contributions to brokerage-wide commission payments. Overall, our results suggest that broker votes function as the nexus for a set of implicit contractual relationships between sell-side brokers, their affiliated analysts, and their buy-side clients.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: February 2014
- HBS Working Paper Number: 14-074
- Faculty Unit(s): Accounting and Management