Are Financial Analysts of IPO Firms Under Pressure: The European Evidence
30 Pages Posted: 19 Jan 2012 Last revised: 27 Sep 2012
Date Written: January 1, 2012
Long run returns of IPO firms’ recommendations in Europe reveal possible conflicts of interest and pressures faced by financial analysts over the 1991-2005 period. Nevertheless, recent European legislations about investment research have led to better long run performance of IPO firms’ recommendations issued by affiliated analysts. Findings reveal that market participants do not fully incorporate the perceived value of recommendations. Indeed, difference between affiliated and unaffiliated analysts’ recommendations is statistically significant over one, three or five year horizon. The timing of recommendations specifies that investors pay more attention to affiliated analysts’ recommendations made later in the aftermarket. This result could suggest that the later is the recommendation made in the IPO aftermarket the weaker is the pressure faced by affiliated analysts.
Keywords: Initial Public Offering, conflicts of interest, financial analysts, long run performance
JEL Classification: G14, G24
Suggested Citation: Suggested Citation