Analyst Selective Coverage in the Presence of IPO Management Forecasts

Posted: 12 Dec 2010 Last revised: 15 Mar 2011

See all articles by Natalia Chatalova

Natalia Chatalova

Abacus Property Group

Janice C. Y. How

Queensland University of Technology; Financial Research Network (FIRN)

Peter Verhoeven

Queensland University of Technology - QUT Business School; Financial Research Network (FIRN)

Date Written: January 31, 2011

Abstract

This paper examines the initiation of analyst coverage of IPO firms in the presence of management forecasts. For a sample of 763 Australian IPOs from 1992 to 2004, we find firms that provide a management forecast in the prospectus are more likely to receive analyst coverage, after correcting for an endogeneity in the relationship. The depth of the coverage, measured by the number of analysts following the firm, is also greater for these firms. While forecast disclosure is irrelevant to the timing decision, underwriter affiliation is significantly associated with earlier and more positive recommendations. Management forecast disclosure is more important to the selective coverage decision of lower than higher quality analysts. Further tests show that analysts have superior predictive abilities and selectively initiate coverage for firms about which their true expectations are favorable, beyond the management forecast regime.

Keywords: Analysts' Selective Coverage, Management Forecast Disclosure, IPOs

JEL Classification: G15, G24, G32, M40

Suggested Citation

Chatalova, Natalia and How, Janice C. Y. and Verhoeven, Peter, Analyst Selective Coverage in the Presence of IPO Management Forecasts (January 31, 2011). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1723923 or http://dx.doi.org/10.2139/ssrn.1723923

Natalia Chatalova

Abacus Property Group

Sydney
Australia

Janice C. Y. How

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

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

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

Peter Verhoeven (Contact Author)

Queensland University of Technology - QUT Business School ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

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

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

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