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The consequences to analyst involvement in the IPO process: Evidence surrounding the JOBS Act

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  • Dambra, Michael
  • Field, Laura Casares
  • Gustafson, Matthew T.
  • Pisciotta, Kevin

Abstract

The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm's subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.

Suggested Citation

  • Dambra, Michael & Field, Laura Casares & Gustafson, Matthew T. & Pisciotta, Kevin, 2018. "The consequences to analyst involvement in the IPO process: Evidence surrounding the JOBS Act," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 302-330.
    • Handle: RePEc:eee:jaecon:v:65:y:2018:i:2:p:302-330
    DOI: 10.1016/j.jacceco.2017.12.001
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    More about this item

    Keywords

    Equity analyst research; Conflicts of interest; JOBS Act; IPOs;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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