Does Reputation Mitigate Analysts’ Conflicts of Interest? Evidence from Recommendations

38 Pages Posted: 17 Mar 2006 Last revised: 26 Oct 2015

See all articles by Daniel Bradley

Daniel Bradley

University of South Florida

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

John Cooney

Texas Tech University - Rawls College of Business

Date Written: August 18, 2009

Abstract

We examine the impact of firm- and personal-level reputation on the incentives of analysts to curry favor with issuing firms. We find that unaffiliated non-star analysts from high reputation investment banks issue more strong-buy recommendations during high IPO underpricing periods than in low IPO underpricing periods and that the market discounts these recommendations, consistent with greater analyst conflicts during hot markets. This suggests that IPO underpricing provides sufficient indirect benefits such that reputable banks are willing to sacrifice their reputation to curry favor to win mandates. Unaffiliated all-star analysts from high reputation investment banks do not follow the same pattern, indicating that personal reputation mitigates the incentive to curry favor. We also examine whether unaffiliated analysts maintain coverage following an SEO if they are not selected as a part of the managing syndicate. Unaffiliated all-star analysts maintain coverage while unaffiliated non-star analysts reduce coverage, consistent with currying favor being the main reason non-star analysts provide coverage for issuing firms.

Keywords: Analysts, IPOs, investment banking, conflicts of interest

JEL Classification: G24

Suggested Citation

Bradley, Daniel and Clarke, Jonathan and Cooney, John W., Does Reputation Mitigate Analysts’ Conflicts of Interest? Evidence from Recommendations (August 18, 2009). Available at SSRN: https://ssrn.com/abstract=891385 or http://dx.doi.org/10.2139/ssrn.891385

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Jonathan Clarke

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

John W. Cooney

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States
806-834-1536 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
223
Abstract Views
1,497
rank
148,916
PlumX Metrics