Paving the Road to the Buy‐Side

Sell‐side analysts commonly transition to buy‐side money managers. I examine whether and how these career transitions shape sell‐side analysts' behavior, relying on the granular career information of 6,310 analysts in the United States. I identify analysts who transition from the sell‐side to the buy‐side and find that these analysts issue inflated recommendations on stocks of interest to their future buy‐side employers. This favoritism is (1) present only during the year preceding their transition, (2) more pronounced among stocks where a single analyst is more influential in moving the stock price; and (3) present only among transitions likely to be strategically planned. Importantly, stocks receiving inflated recommendations experience a significant price decline following the departure of transitioning analysts from the sell‐side. Overall, these findings suggest that analyst career transitions are an important source of conflicts of interest.