Ping LIU

Date of Award


Degree Type


Degree Name

Master of Philosophy (MPHIL)


Finance and Insurance

First Advisor

Prof. Michael A. FIRTH


I investigate whether the business relations between mutual funds and brokerage firms influence sell-side analyst coverage and recommendations. Using a comprehensive sample of analyst recommendations in China over the 2004-2008 period, I find that the likelihood of analyst coverage and analysts’ relative recommendations, benchmarked against consensus recommendations, are positively associated with the mutual fund business relationship. I measure the business relation by the weight of a stock in the mutual fund client’s portfolio and the commission revenue generated from the mutual fund clients. My results show that mutual funds take advantage of these optimistic recommendations by selling the stocks. I also find evidence that analysts employed in politically connected brokerage firms inflate their recommendations on state-controlled listed enterprises. Lastly, I examine the short-term and long-term investment returns from a strategy that follows the analyst recommendations. In the short-term, I find positive stock returns, which benefit the client mutual funds. However, I also find evidence that investors recognize the conflict of interest and caps the stock price increases. In the longer-term, the strong buy and buy recommendations yield zero or negative stock returns.


Mutual funds, China, Investment advisors

Recommended Citation

Liu, P. (2009). The customer is king: Mutual fund relationships and analyst recommendations (Master's thesis, Lingnan University, Hong Kong). Retrieved from