How Does Going Public Affect Employee Behavior? Evidence from Brokerage IPOs

43 Pages Posted: 11 Apr 2019

See all articles by Mark T Bradshaw

Mark T Bradshaw

Boston College

Michael S. Drake

Brigham Young University - Marriott School

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Brady J. Twedt

University of Oregon - Lundquist College of Business

Date Written: March 15, 2019

Abstract

This study examines the effects of initial public offerings (IPOs) by brokerages (henceforth, broker IPOs) on the objectivity of sell-side equity analysts employed by those brokers. Using a generalized difference-in-differences research design, we provide evidence that analysts produce more optimistically biased earnings forecasts relative to their peers following their employer’s IPO. We further find that the effect of broker IPOs on analysts’ forecast bias is more pronounced when analysts have greater economic incentives for optimistic bias. We also find that brokers hire more biased analysts following their IPOs. Our results are consistent with IPOs impacting individual non-executive employees by increasing the alignment of their incentives with those of the firm.

Keywords: Financial Analysts, Forecast Bias, Initial Public Offerings

JEL Classification: G14, G24

Suggested Citation

Bradshaw, Mark T and Drake, Michael S. and Pacelli, Joseph and Twedt, Brady J., How Does Going Public Affect Employee Behavior? Evidence from Brokerage IPOs (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3354775 or http://dx.doi.org/10.2139/ssrn.3354775

Mark T Bradshaw

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Michael S. Drake (Contact Author)

Brigham Young University - Marriott School ( email )

United States

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Brady J. Twedt

University of Oregon - Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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