A long-term analysis of research unbundling: implications for research provision and market quality

Abstract

This replication study assesses the long-term effects of MiFID II’s research unbundling rules on investment research provision and stock market quality. We extend existing studies by utilizing a post-event period exceeding five years, by regional differentiation within Europe, and by incorporating the new option to rebundle payments for order execution and research services for SMEs. In line with existing studies, we find a decrease in analyst coverage after MiFID II, particularly for large caps, while SMEs remain unaffected. These findings are consistent across different European regions but not for the United Kingdom. Market quality experiences a decline, with lower trading volume and increased volatility, offset by liquidity improvements for larger firms. After the introduction of rebundling, which has not been analyzed by existing studies, SME research coverage declines, suggesting that investment firms are not utilizing this option. Our findings offer insights for evidence-based policy-making as regulatory discussions on research unbundling persist in different jurisdictions.