Equity Ownership in IPO Issuers by Brokerage Firms and Analyst Recommendations

53 Pages Posted: 25 Mar 2008 Last revised: 16 May 2023

See all articles by Qiang Kang

Qiang Kang

Florida International University (FIU) - Department of Finance

Xi Li

University of Arkansas - Department of Finance

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Tarun Patel

Southern Methodist University (SMU) - Finance Department

Date Written: May 23, 2022

Abstract

We examine recommendation informativeness of analysts affiliated with brokerage firms having venture capital ownership in initial public offerings (IPOs) before and after the IPO lockup expiration in a difference in differences design. Affiliated analyst recommendations yield larger absolute abnormal returns than unaffiliated analyst recommendations during the lockup period, especially for stocks with greater information asymmetry. The difference disappears after lockup expirations when venture capitalists generally sell or distribute their holdings. The results suggest that, despite potential conflicts of interest, combining venture capital investment and analyst coverage enhances credibility for affiliated analysts and benefits IPO issuers and public investors.

Keywords: sell-side analyst stock recommendations, IPOs, IPO lockups, asymmetric information, conflicts of interest, venture capital, brokerage firms, universal banking

JEL Classification: G24, G28, G38, G14

Suggested Citation

Kang, Qiang and Li, Xi and Masulis, Ronald W. and Patel, Tarun, Equity Ownership in IPO Issuers by Brokerage Firms and Analyst Recommendations (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=1107634 or http://dx.doi.org/10.2139/ssrn.1107634

Qiang Kang

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Xi Li (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Tarun Patel

Southern Methodist University (SMU) - Finance Department ( email )

United States

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