Sell-side security analysts in the nexus of principal-agent relations: An information economics perspective

Abstract

In this paper we investigate in depth the contractual partner relationships between sell-side security analysts and the correspondently involved parties, where the sell-side security analyst is considered as both principal and agent. We break the activities of security analysts down into a nexus of principal-agent relationships where the most striking contractual partner relationship in this network appears among sell-side analyst and the (to be) assessed company (evaluand). By analyzing the research question in this fashion we find considerable potential for information and moral hazard risks.