That Ship Has Sailed: Unaffiliated Analysts' Recommendation Performance for IPO Firms

44 Pages Posted: 22 Mar 2006

See all articles by Maureen F. McNichols

Maureen F. McNichols

Stanford University

Patricia C. O'Brien

University of Waterloo

Omer M. Pamukcu

University of Waterloo - School of Accounting and Finance

Date Written: March 2006

Abstract

We examine whether unaffiliated financial analysts' Buy recommendations after IPOs earn higher returns than those of affiliated analysts during the 1994-2001 time period, when analysts working at investment banks are alleged to have been influenced by conflicts of interest. We extend the work of Michaely and Womack (1999), who studied 1990-1991 IPOs. While we confirm their result that investors tend to discount the recommendations of affiliated analysts, we do not find unaffiliated analyst recommendations earning higher abnormal buy-and-hold returns than recommendations from affiliated analyst at intervals of three, six or twelve months after the recommendation. Rather, our results show that the results vary considerably from year to year, with no evident time trend. Overall, we find that affiliated recommendations do not discriminate between good and bad IPO stocks, but unaffiliated recommendations generally arrive too late to provide useful trading advice.

Keywords: financial analysts, investment banking, recommendations, stock performance, conflict of interest

JEL Classification: G14, G24, G29

Suggested Citation

McNichols, Maureen F. and O'Brien, Patricia C. and Pamukcu, Omer M., That Ship Has Sailed: Unaffiliated Analysts' Recommendation Performance for IPO Firms (March 2006). Available at SSRN: https://ssrn.com/abstract=892633 or http://dx.doi.org/10.2139/ssrn.892633

Maureen F. McNichols (Contact Author)

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-0833 (Phone)

Patricia C. O'Brien

University of Waterloo ( email )

200 University Avenue, West
Waterloo, Ontario N2L 3G1
Canada
1-519-888-4567 (Phone)
1-519-888-7562 (Fax)

Omer M. Pamukcu

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
435
Abstract Views
3,469
rank
75,015
PlumX Metrics