Abstract
We investigate the relationship between security analyst coverage characteristics and analyst-related incentives in order to determine whether the quality of analyst-generated information, (as measured by the absolute median forecast error of estimates, analyst uncertainty, diversity of opinion among analysts, and excessive analyst optimism) improves if higher trading commissions and fees can be earned, or when there is greater investor interest and scrutiny. We find strong evidence that incentives influence the quality of analyst information. The implication of our findings is that it would serve investors well to distinguish between high quality and low quality analyst forecasts and recommendations. We recommend that investors estimate the “information risk” associated with analyst reports. <b>TOPICS:</b>Security analysis and valuation, fundamental equity analysis
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