The Effects of Expanded Analyst Ownership Disclosure on Nonprofessional Investors’ Judgments and Decision-Making

ABSTRACT

This study examines how expanded analyst ownership disclosures affect nonprofessional investors’ confidence in analyst recommendations and on their subsequent capital allocation decisions. In an experimental setting we manipulate information regarding the magnitude and duration of the analyst’s ownership position in a recommended stock. We find that investor confidence in analyst recommendations is significantly lower when analysts provide expanded disclosures, indicating that additional details heighten investor sensitivity to potential conflicts of interest in analysts’ recommendations. Consistent with attribution theory’s discounting principle, nonprofessional investors’ confidence is lowest when analysts disclose a large, short-term ownership position. We also document that investor confidence mediates the relation between analyst ownership disclosures and investors’ capital allocation decisions. Collectively, our findings provide evidence that expanded ownership disclosures influence both investor perceptions and behavior, offering support for regulatory initiatives aimed at enhancing analyst ownership transparency.