The Influence Of Equity Relationship On The Behavior Of Brokerages Analysts And Fund Companies

In some respects, the stock market is the game of information and security analysts are important information providers. By providing the relevant financial and operational information, security analysts can effectively reduce the information asymmetry of investors, promote a quicker reaction to the information and increase the efficient pricing function of the capital market. The fund company is a professional financial institution in the security market and its investment philosophy as well as investment behavior have a profound impact on the market. What’s more, its professional investment behavior helps to reduce the volatility of market prices and to guide the rational regression of price.In recent years, however, a number of analysts and fund companies have cheated, which seriously damages the reputation of institutional investors and adversely affects the market. As a result, the research on the behavior of analysts and fund companies becomes an important field of academic research. This paper is aimed at breaking through the business scope of the brokers and fund companies, examining security analysts’ optimism and fund companies’ behavior through the equity relationship between fund companies and brokerage firms and then analyzes how the equity relationship between them influences analysts’ and fund companies’specific behaviors.The relevant researches mainly on analysts’ optimism and fund companies’ investing behaviors are reviewed in this paper. Based on the review, the article explains the agent behavior of analysts and the fund company according to the asymmetric information and the agency theory. It predicts their behavior from the theoretical level and raises three main hypotheses.The paper studies the data of Shanghai and Shenzhen Stock Market from 2006 to 2013 on the basis of theoretical analyses, and empirically tests assumptions that how the ownership influences analysts’ and fund companies’ behavior. Several conclusions are drawn as follows.Firstly, equity relationships between brokers and fund companies do affect the rating recommendations from brokerage analysts and they tend to issue positive research reports on the stock largely held by related fund companies.Secondly, under the same conditions, the more shares brokers hold, the more optimistic rating reports analysts issue; the more shares common shareholders hold, the more pessimistic rating reports analysts issue.Thirdly, the associated equity is an important consideration in addition to the brokerage research capacity in the allocation of commission costs. Compared to non-related brokers, related ones get significantly more commission income. From the perspective of ownership, the more shares brokers hold, the more commission income the related brokers earn; greater proportions of shares held by common shareholders would promote the commission income of related brokers. However, the relationship between them is not significant.Fourthly, rating reports from stock analysts are of great significance to investment in the long term and different rating reports can distinguish different stock returns. In the short term, investors fail to recognize research reports published by related analysts and the difference of optimistic reports between related and non-related analysts proves insignificant.Based on the equity relationship between fund companies and brokers, this article studies brokerage analysts’ research behaviors and the fund companies’ behaviors of commission distribution. It develops the explanation of analysts’ optimism and fills the gaps in the study of fund companies’ behaviors of commission distribution. Conclusions of this study will help investors understand the correctness of analysts’ research reports and, on the same time, provides theoretical support for regulators to regulate institutional investors. Therefore, the article has certain directive effect for further study and practice.