Examination of prior research suggests that affiliated sell-side analysts are subject to conflicts of interest that cause them to issue optimistically biased stock recommendations for investment banking clients. Using a sample of public technology companies, I find that analysts have a theoretical discrepancy of up to 26% when valuing companies using a discounted cash flow model, and a 19-22% theoretical discrepancy when using comparable company analysis. I showcase how conventional valuation methodologies can allow sell-side analysts significant leeway that can be used to further unethical agendas and draw conclusions around the usefulness of regulatory intervention in the financial services industry.
"The Wall Street Gap: A Theoretical Analysis of Company Valuation Discrepancy,"
Undergraduate Economic Review: Vol. 14
, Article 15.
Available at: https://digitalcommons.iwu.edu/uer/vol14/iss1/15