Strength of Analyst Coverage Following IPOs

45 Pages Posted: 18 Oct 2005  

Jason J. Karceski

LSV Asset Management

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: February 28, 2005

Abstract

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

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

Jason J. Karceski (Contact Author)

LSV Asset Management ( email )

155 N Wacker Dr.
Chicago, IL 60654
United States
352-246-7674 (Phone)

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3486 (Phone)
352-392-0301 (Fax)

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