Should information be sold separately? Evidence from MiFID II I

Information production is key to the efficiency of financial markets. Does selling infor-mation separately improve its production? We investigate this question using MiFID II, a European regulation that unbundles research from transactions. We show that unbundling causes fewer research analysts to cover a firm. This decrease does not come from small -or mid-cap firms but is concentrated in large firms. Surprisingly, the reduction in analyst coverage is accompanied by a decrease in forecast error. Further analyses suggest that an-alyst competition enhancement could drive the results: inaccurate analysts drop out, and analysts who stay produce more accurate research. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

Unbundling research from transactions under MiFID II leads to a decrease in the number of research analysts covering firms, particularly in large companies. However, this reduction is accompanied by a decrease in forecast error, possibly due to enhanced analyst competition leading to more accurate research from the remaining analysts.