Conflict of Interest and the Credibility of Underwriters Analyst Recommendations

Posted: 8 May 1999

See all articles by Roni Michaely

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

Abstract

Brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public. We show that stocks that underwriter analysts recommend perform more poorly than "buy" recommendations by unaffiliated brokers prior to, at the time of, and subsequent to the recommendation date. We conclude that the recommendations by underwriter analysts show significant evidence of bias. We show also that the market does not recognize the full extent of this bias. The results suggest a potential conflict of interest inherent in the different functions that investment bankers perform.

JEL Classification: G12, G14

Suggested Citation

Michaely, Roni and Womack, Kent L., Conflict of Interest and the Credibility of Underwriters Analyst Recommendations. Review of Financial Studies, Vol. 12, Issue 3, 1999. Available at SSRN: https://ssrn.com/abstract=161610

Roni Michaely (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

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