45 Pages Posted: 18 Oct 2005
Date Written: February 28, 2005
Firms with poor aftermarket performance are given higher target prices and are more likely to receive strong buy recommendations, especially by analysts affiliated with the lead underwriter. This favorable coverage is relatively short-lived, lasting for only the first one or two analyst reports, typically less than six months. Controlling for the quantity of coverage received, stock prices of newly public firms increase more when the target price ratio is high and the recommendation is a strong buy. These results suggest that when a firm goes public, underwriter affiliated analysts provide protection in the form of market-moving "booster shots" of stronger coverage if the firm experiences poor aftermarket stock performance.
Keywords: Initial public offering, analyst, target price
JEL Classification: G24, G14
Suggested Citation: Suggested Citation
Karceski, Jason J. and James, Christopher M., Strength of Analyst Coverage Following IPOs (February 28, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=600721 or http://dx.doi.org/10.2139/ssrn.600721