Currying Favor to Win IPO Mandates

Abstract:     
This paper investigates whether a bank can win IPO mandates by issuing flattering analyst recommendations to recent IPOs. We find that security analysts increase their bank's chance of comanaging an IPO when they issue generous recommendations to recent IPOs managed by the IPO's lead manager. However, this result holds only for prestigious banks. Less prestigious banks, whose recommendations are less influential, do not obtain such rewards from lead managers. We also find that security analysts increase their bank's chance of managing future IPOs when they issue generous recommendations to recent IPOs managed by their own bank. This result, however, holds only for non-prestigious banks. These banks, which are not the issuers' first choice, appear to advertize their services by issuing generous analyst coverage to their recent offerings.

Number of Pages in PDF File: 51

Keywords: Initial public offerings, underwriting syndicates, analyst behavior

JEL Classification: G3, G24

working papers series