POWER AND CONFLICTS-OF-INTEREST IN PROFESSIONAL FIRMS - EVIDENCE FROMINVESTMENT BANKING

We study the resolution of conflicts of interest that arise when actor s in professional firms represent separate parties with competing inte rests, using models of power and reputation to predict the resolution of such conflicts. We tested models on an initial sample of over 8,000 security analysts' ratings of corporate equity securities. Results sh ow that analysts rate their clients' securities more favorably than ot her analysts rating the same securities. This positive bias is moderat ed by the reputation of the analyst and his or her department. Implica tions and extensions for organizational theory, multiservice professio nal firms, and security market regulation are discussed.