Banks’ Internal Review Policies and Analysts’ Information Production

Abstract

I examine the effect of banks’ internal review policies on analysts’ information production. To overcome the lack of observability of these policies, I exploit a requirement in the Global Settlement that mandates sanctioned banks establish oversight committees to review material target price revisions. Some banks implemented 10% bright-line thresholds for these revisions, whereas others did not. I find that analysts at banks with bright-line thresholds issue absolute target price revisions below the 10% threshold to avoid triggering a review. I also find that the review process, when triggered, decreases the timeliness of analysts’ revisions. However, despite oversight committees’ mandate to monitor research quality, I find little evidence that the reviewed target price revisions are less optimistic.