Marketing Financial Claims

36 Pages Posted: 16 Mar 2007  

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Salim Chahine

American University of Beirut - Olayan School of Business

Roni Michaely

Johnson@Cornell Tech, Cornell University

Date Written: March 14, 2007

Abstract

We examine a comprehensive set of 524 pre-IPO analyst reports made available to institutional investors and the broker's retail sales force in the course of marketing equity IPOs in France over the period 1991-2002. Exploiting exogenous variation in the behavior of affiliated and independent analysts caused by well-known conflicts of interest, we find that analyst reports are used to "hype" the issuer's stock in harder-to-place offerings and when more stock is reserved for allocation to retail investors. Moreover, retail (but not institutional) demand is stimulated by hype, and this demand boost in turn enables the underwriting bank to increase the offer price for the benefit of its corporate client. These results underscore the marketing (as opposed to information production) role of research analysts. They also suggest that analysts sometimes pander to certain psychological biases retail investors may be prone to, consistent with recent theoretical models.

Keywords: Retail investors, Marketing, Hype, IPOs, Analyst research, Conflicts of interest, Behavioral Finance

JEL Classification: G14, G24

Suggested Citation

Ljungqvist, Alexander and Chahine, Salim and Michaely, Roni, Marketing Financial Claims (March 14, 2007). Available at SSRN: https://ssrn.com/abstract=971085 or http://dx.doi.org/10.2139/ssrn.971085

Alexander Ljungqvist

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

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