Do IPO Firms Purchase Analyst Coverage with Underpricing?

42 Pages Posted: 1 Apr 2003

Date Written: February 2003


We examine the links among IPO underpricing, post-IPO analyst coverage, and the likelihood of switching underwriters. Our findings indicate a significant positive relation between underpricing and analyst coverage by the lead underwriter. This positive association is robust to controls for other determinants of underpricing previously documented in the literature and to controls for the endogeneity of underpricing and analyst coverage. In addition, after controlling for other potential determinants of switching underwriters, we find that the probability of switching underwriters between IPO and SEO is negatively related to the unexpected amount of post-IPO analyst coverage. We interpret these findings as consistent with the hypothesis that underpricing is, in part, compensation for expected post-IPO analyst coverage.

Keywords: IPOs, analyst coverage, underwriters

JEL Classification: G24, G32

Suggested Citation

Cliff, Michael T. and Denis, David J., Do IPO Firms Purchase Analyst Coverage with Underpricing? (February 2003). Available at SSRN: or

Michael T. Cliff (Contact Author)

Analysis Group ( email )

800 17th St, N.W.
Suite 400
Washington, DC 20006
United States
(202) 530-2010 (Phone)

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

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