Equity Pledge And Analyst Independence

A securities analyst is an information intermediary between an investor and a listed company.Its function is to provide investors with useful information for decisionmaking,reducing the degree of information asymmetry between investors and listed companies,but the interference of other interests makes analyst independence.The problem has been controversial.In the past,the research on analyst independence focused on the relationship between “client-trustee”,“investment intermediaryinvestor”,“shareholder-company”,“information demander-supplier”,but with the the expansion of business of pledge of equity in China,there is a heavy “credit-debtor” relationship between brokers and companies.At present,there is no literature on the independence of analysts from the perspective of “creditor-debtor”.This paper studies the impact of equity pledge on analyst independence from the perspective of equity pledge.Firstly,based on the principal-agent theory,this paper analyzes the impact of equity pledge on analyst independence and the corresponding impact mechanism,and proposes research hypotheses.Specifically,when the company has a pledge of equity in the brokerage,then the analyst of the brokerage is in a conflict of dual “principalagent” relationships,which forces the analyst to issue a more optimistic investment rating,thus damaging the analysis' s independence.Secondly,this paper selects the 2007-2016 A-share listed company and its analyst data for empirical analysis to test whether the equity pledge will reduce the analysis independence,and at the same time,from the company information transparency and the analyst reputation mechanism,this paper tests the impact mechanism that whether those mechanisms can alleviate or exacerbate this phenomenon.Finally,based on theoretical analysis and empirical results,the conclusions of this paper are drawn and relevant policy recommendations are put forward.The research findings in this paper are as follows:(1)If the brokerage company is associated with the company's equity pledge business,then the analysts of the brokerage firm will be more optimistic about the company's investment rating,which will reduce the analyst's independence.(2)Compared with companies with higher information transparency,if the company's information transparency is low,then equity pledge will reduce analyst independence.(3)Compared with analysts with lower personal reputation,if the analyst's personal reputation is higher,then the equity pledge will not reduce the analyst's independence.The above conclusions are still valid after replacing the explanatory variables,changing the explanatory variables,retaining only the analyst's first forecasting sample for the year,retaining the analyst's last forecasting sample for the year,replacing the standard misadjustment method,and DID+PSM controlling endogeneity.The significance and possible innovations of this paper are as follows:(1)This paper studies the influence of brokerage interests on analyst independence from the perspective of “creditor-debtor” and makes up for the research vacancies in this field.(2)Existing research has confirmed that equity pledge has the effect of deteriorating the quality of corporate information.This study confirms that equity pledge also has a deteriorating effect on analysts' information quality,and further expands the research on the deterioration effect of equity pledge information quality.(3)This paper examines the impact mechanism of equity pledge and analyst independence from the perspective of corporate information transparency and analyst reputation mechanism,and deeply explores the mechanism of equity pledge to reduce analyst independence.Finally,based on the results of this paper,this paper believes that strengthening the information transparency assessment mechanism of listed companies,improving the analyst reputation mechanism,improving the internal governance structure of securities firms,and increasing the equity pledge business review mechanism can alleviate the negative impact of equity pledge on analyst independence.I hope to provide some experience and inspiration for policy makers,brokerage practitioners,and company executives.