Abstract
We examine the impact of vote solicitation restrictions on the inputs and outputs of sell-side analysts serving the needs of buy-side. We exploit a regulatory change taking place in China’s securities market (“Security Analysts Participating in External Selection Standard”, “SAPESS” hereafter), to investigate the underlying motives of sell-side analysts’ behaviors. SAPESS was implemented in 2019, prohibiting solicitation by sell-side analysts of votes from the buy-side (such as fund managers) counting towards the annual ranking of the sell-side analysts. We find that affected brokerages reduce their spending on business entertainment expenses, sell-side analysts increase the frequency of site visits at companies that they cover, and increase their output of higher-quality industry reports but not company-specific reports. We also document that these changes mainly occur during the period when the voting for star analysts is ongoing. Our findings shed light on analysts’ activities that are likely to be considered more valuable by the buy-side.