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The Impact of All-Star Analyst Job Changes on Their Coverage Choices and Investment Banking Deal Flow

Posted: 18 Dec 2005 Last revised: 26 Oct 2015

Ajay Khorana

Georgia Institute of Technology - Finance Area

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

P. Raghavendra Rau

University of Cambridge

Ajay Patel

Wake Forest University, School of Business

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Abstract

Using a sample of all-star analysts who switch investment banks between 1988 and 1999, we examine (1) whether analyst behavior is influenced by investment banking relationships and (2) whether analyst behavior affects investment banking deal flow (debt and equity underwriting and corporate control transactions). Although the stock coverage decision is dependent on the investment banking relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity underwriting transactions. For debt underwriting and M&A transactions, after controlling for bank reputation, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

Keywords: All-star analyst, analyst coverage, market share, investment banking relationships, conflicts of interests

JEL Classification: G24, G29, G32, M41

Suggested Citation

Khorana, Ajay and Clarke, Jonathan and Rau, P. Raghavendra and Patel, Ajay, The Impact of All-Star Analyst Job Changes on Their Coverage Choices and Investment Banking Deal Flow. Journal of Financial Economics, Vol. 84, pp. 713-737, 2007. Available at SSRN: https://ssrn.com/abstract=870331

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

Jonathan Clarke (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4929 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://mgt.gatech.edu/directory/clarke.html

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Ajay Patel

Wake Forest University, School of Business ( email )

1834 Wake Forest Road
Building 60, Farrell Hall
Winston-Salem, NC 27106
United States
336-758-5575 (Phone)
336-758-4514 (Fax)

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