Underwriting Relationships and Analyst Independence in Europe

25 Pages Posted: 6 Jul 2010

See all articles by Phillip J. McKnight

Phillip J. McKnight

University of St. Andrews - School of Management

Manouchehr Tavakoli

University of St. Andrews

Charlie Weir

Robert Gordon University - Aberdeen Business School

Abstract

This paper examines the accuracy of security analysts’ earnings forecasts and stock recommendations for firms in 13 European countries. We document at least three key findings. First, we find strong evidence that lead and co-lead underwriter analysts’ earnings estimates and stock recommendations are significantly more optimistic than those provided by unaffiliated analysts. Second, we find that lead and co-lead underwriter analysts’ earnings forecast and stock recommendations are significantly more optimistic for underwriter stocks than for those they provide for other stocks. Third, we also find evidence that these biases found within earnings forecasts and stock recommendations are not driven by one particular country. In short, these findings suggest that affiliated analysts are more optimistic perhaps to maintain investment banking relations.

Suggested Citation

McKnight, Phillip J. and Tavakoli, Manouchehr and Weir, Charles, Underwriting Relationships and Analyst Independence in Europe. Financial Markets, Institutions & Instruments, Vol. 19, Issue 3, pp. 189-213, August 2010. Available at SSRN: https://ssrn.com/abstract=1633653 or http://dx.doi.org/10.1111/j.1468-0416.2010.00157.x

Phillip J. McKnight (Contact Author)

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

Manouchehr Tavakoli

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

Charles Weir

Robert Gordon University - Aberdeen Business School ( email )

Garthdee Road
RGU
Aberdeen AB10 7QE
United Kingdom
0044 1224 263800 (Phone)
0044 1224 263838 (Fax)

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