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The impact of reputation on analysts’ conflicts of interest: Hot versus cold markets

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  • Bradley, Daniel
  • Clarke, Jonathan
  • Cooney, John
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    Abstract

    During periods of high IPO underpricing, unaffiliated all-star analysts from high reputation banks issue fewer strong-buy recommendations while unaffiliated all-star analysts from low reputation banks do not change their level of optimism. In contrast, unaffiliated non-star analysts from both high and low reputation banks issue more strong-buy recommendations. Consistent with the results on analyst optimism, the market reacts more favorably to strong-buy recommendations by unaffiliated all-star analysts from high reputation banks than other unaffiliated analysts during high IPO underpricing periods. Finally, we find that unaffiliated non-star analysts from low reputation banks reduce their coverage following an SEO if they are not selected as a part of the managing syndicate. Collectively, our results indicate that during periods of high IPO underpricing unaffiliated analysts face conflicts of interest, but personal-level reputation, and to a lesser extent bank-level reputation, plays a role in reducing this bias.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 8 ()
    Pages: 2190-2202

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2190-2202

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Analysts’ recommendations; Investment banking; Conflicts of interest;

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    References

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    1. Irvine, Paul J., 2003. "The incremental impact of analyst initiation of coverage," Journal of Corporate Finance, Elsevier, vol. 9(4), pages 431-451, September.
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