Currying Favor to Win IPO Mandates

51 Pages Posted: 7 Mar 2006  

François Derrien

HEC Paris - Finance Department

Date Written: December 5, 2006

Abstract

This paper investigates whether a bank can win IPO mandates by issuing flattering analyst recommendations to recent IPOs. We find that security analysts increase their bank's chance of comanaging an IPO when they issue generous recommendations to recent IPOs managed by the IPO's lead manager. However, this result holds only for prestigious banks. Less prestigious banks, whose recommendations are less influential, do not obtain such rewards from lead managers. We also find that security analysts increase their bank's chance of managing future IPOs when they issue generous recommendations to recent IPOs managed by their own bank. This result, however, holds only for non-prestigious banks. These banks, which are not the issuers' first choice, appear to advertize their services by issuing generous analyst coverage to their recent offerings.

Keywords: Initial public offerings, underwriting syndicates, analyst behavior

JEL Classification: G3, G24

Suggested Citation

Derrien, François, Currying Favor to Win IPO Mandates (December 5, 2006). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=888204 or http://dx.doi.org/10.2139/ssrn.888204

François Derrien (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

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