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Do IPO Analysts Issue Unfavorable Recommendations on Non-IPO Firms?

46 Pages Posted: 25 Mar 2005  

Simona Mola

U.S. Securities and Exchange Commission; Arizona State University (ASU) - Finance Department

Date Written: February 18, 2005


An analysis of 3,569 recommendations made by 1,601 IPO analysts from January 1997 through June 1999 indicates that analysts downgrade comparable non-IPO firms before they initiate research coverage on IPOs. For these non-IPO firms, receiving the rating before the IPO initiation results in a five-day abnormal return of -0.7%. Yet, IPO stocks on five days surrounding the last recommendation on non-IPOs report a significant abnormal return of +1.1%. Adjusting for other factors, downgrades of non-IPO stocks by analysts affiliated with the lead manager are negatively associated with the price performance of IPOs after the initial offering day. The evidence suggests that analysts are downgrading non-IPO stocks to support cold issues placed by the underwriters they are affiliated with.

Keywords: IPO, analysts, conflicts of interest

JEL Classification: G14, G24

Suggested Citation

Mola, Simona, Do IPO Analysts Issue Unfavorable Recommendations on Non-IPO Firms? (February 18, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: or

Simona Mola Yost (Contact Author)

U.S. Securities and Exchange Commission ( email )

Washington, DC
United States
2025516527 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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