The Consequences to Analyst Involvement in the IPO Process: Evidence Surrounding the JOBS Act

75 Pages Posted: 25 Nov 2014 Last revised: 10 Jan 2018

See all articles by Michael Dambra

Michael Dambra

SUNY at Buffalo - School of Management

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Kevin Pisciotta

University of Kansas - School of Business

Date Written: January 2, 2018

Abstract

The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm’s subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.

Keywords: Equity Analyst Research; Conflicts of Interest; JOBS Act; IPOs

JEL Classification: G24, G28, M41, K22, G14

Suggested Citation

Dambra, Michael and Field, Laura Casares and Gustafson, Matthew and Pisciotta, Kevin, The Consequences to Analyst Involvement in the IPO Process: Evidence Surrounding the JOBS Act (January 2, 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2530109 or http://dx.doi.org/10.2139/ssrn.2530109

Michael Dambra (Contact Author)

SUNY at Buffalo - School of Management ( email )

354 Jacobs Management Center
Buffalo, NY 14260-1660
United States
716-645-3237 (Phone)

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Kevin Pisciotta

University of Kansas - School of Business ( email )

Capital Federal Hall
1654 Naismith Dr
Lawrence, KS 66045
United States

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