Working Paper | HBS Working Paper Series | 2013

The Use of Broker Votes to Reward Brokerage Firms' and Their Analysts' Research Activities

by David A. Maber, Boris Groysberg and Paul M. Healy


In traditional markets, the price mechanism directs the flow of resources and governs the process through which supply and demand are brought into equilibrium. In the investment-research industry, broker votes perform these functions. Using detailed clinical data from a midsized investment bank for the years 2004 to 2007, we present evidence that institutional investors use broker votes to budget future aggregate commission payments across brokerage firms; that these votes are responsive to actions that brokerage-house analysts take to communicate with client investors; and that brokerage firms use client-supplied votes as a quasi allocation base to indirectly reward individual analysts for contributions to brokerage-wide commission payments. Overall, our results suggest that broker votes function as the nexus for a set of implicit contractual relationships between sell-side brokers, their affiliated analysts, and their buy-side clients.

Keywords: Markets for information; sell-side analysts; Commissions; Broker votes; compensation; Public and private communications; Management access; relational contracts; Voting; Balance and Stability; Research; Supply and Industry; Investment; Corporate Governance; Compensation and Benefits; Banking Industry;


Maber, David A., Boris Groysberg, and Paul M. Healy. "The Use of Broker Votes to Reward Brokerage Firms' and Their Analysts' Research Activities." Harvard Business School Working Paper, No. 14-074, February 2014.