Equity Analysts Affiliated with Corporate Lenders*

Equity analysts affiliated with corporate lenders publish superior research on borrowers, consistent with private information sharing within financial institutions. Relative to other analysts, lender-affiliated analysts improve the accuracy of their earnings forecasts after a lending relationship is established, and they are more likely to amend their research on borrowers ahead of revelation of adverse credit-related information. Borrowers are also more likely to choose banks whose affiliated analysts maintain more favorable recommendations on their stock. Additional analyses suggest that these favorable recommendations can be partially explained by strategic bias induced by lender-affiliated analysts. Lending-related informational advantages persist beyond Regulation FD and the Global Settlement, but strategic use of bias ends with the Global Settlement. Stock market reactions to research modifications suggest investors appreciate the "specialness" of lender-affiliated analysts. * We thank Aydoğan Altı, Hemang Desai, Paul Laux, Darius Miller, Natalia Reisel, Robert Schweitzer, Rex Thompson, Kumar Venkataraman, Michel Vetsuypens, Wendy Wilson, and seminar participants at the Securities and Exchange Commission and Southern Methodist University for helpful discussions and valuable comments. The authors are particularly thankful to Ramgopal Venkataraman for help with the I/B/E/S data.