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: Suggested Citation