Pump and Dump: An Empirical Analysis of the Relation between Corporate Financing Activities and Sell-Side Analyst Research

43 Pages Posted: 22 May 2003

See all articles by Mark T Bradshaw

Mark T Bradshaw

Boston College

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Date Written: May 2003

Abstract

We analyze the relation between corporate financing activities and sell-side analysts' investment research. We document pervasive evidence of overoptimism in sell-side analysts' earnings forecasts, stock recommendations and target prices that is systematically related to corporate financing activities. Overoptimism is greatest for firms issuing equity and debt and least for firms repurchasing equity and debt. Our evidence is consistent with allegations that sell-side analysts routinely manipulate their investment advice in response to investment banking pressures in order to temporarily inflate stock prices around securities issuances.

Keywords: External Financing, Sell-side Analysts, Capital Markets, Market Efficiency

JEL Classification: M4, G1

Suggested Citation

Bradshaw, Mark T and Richardson, Scott Anthony and Sloan, Richard G., Pump and Dump: An Empirical Analysis of the Relation between Corporate Financing Activities and Sell-Side Analyst Research (May 2003). Available at SSRN: https://ssrn.com/abstract=410521 or http://dx.doi.org/10.2139/ssrn.410521

Mark T Bradshaw

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Richard G. Sloan (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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