How Does Going Public Affect Employee Behavior? Evidence from Brokerage IPOs
43 Pages Posted: 11 Apr 2019
Date Written: March 15, 2019
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: Suggested Citation