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Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations

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Author Info
Ljungqvist, Alexander P
Marston, Felicia
Wilhelm Jr, William J

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Abstract

We investigate directly whether analyst behaviour influenced the likelihood of banks winning underwriting mandates for a sample of 16,625 US debt and equity offerings sold between December 1993 and June 2002. We control for the strength of the issuer’s investment-banking relationships with potential competitors for the mandate, prior lending relationships, and the endogeneity of analyst behaviour and the bank’s decision to provide analyst coverage. Contrary to recent allegations, we find no evidence that aggressive analyst recommendations or recommendation upgrades increased a bank’s probability of winning an underwriting mandate once we control for analysts’ career concerns. In fact, the opposite appears to be the case. We interpret this finding as evidence that credibility is central to resolving information frictions associated with securities offerings. Overly aggressive analyst behaviour undermines credibility.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4162.

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Date of creation: Dec 2003
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Handle: RePEc:cpr:ceprdp:4162

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Related research
Keywords: analyst behaviour commercial banks glass-steagall act underwriting

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hamid Mehran & Rene M. Stulz, 2006. "The Economics of Conflicts of Interest in Financial Institutions," NBER Working Papers 12695, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Simona Mola & Massimo Guidolin, 2006. "Why do analysts continue to provide favorable coverage for seasoned stocks?," Working Papers 2006-034, Federal Reserve Bank of St. Louis. [Downloadable!]
  3. Steven Drucker & Manju Puri, 2004. "Tying knots: lending to win equity underwriting business," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 428-435. [Downloadable!]
  4. Erik Sirri, 2004. "Investment banks, scope, and unavoidable conflicts of interest," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 23-35. [Downloadable!]
  5. Andrea Frazzini & Christopher Malloy & Lauren Cohen, 2008. "Sell Side School Ties," NBER Working Papers 13973, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Lidén, Erik R. & Rosenberg, Markus, 2006. "Ten Years of Misleading Information - Investment Advice in Printed Media," Working Papers in Economics 230, Göteborg University, Department of Economics. [Downloadable!]
  7. Steven Drucker & Manju Puri, 2004. "The Tying of Lending and Equity Underwriting," NBER Working Papers 10491, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Kenneth A. Carow & Edward J. Kane & Rajesh P. Narayanan, 2005. "Winners and Losers from Enacting the Financial Modernization Statute," NBER Working Papers 11256, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. François Degeorge & François Derrien & Kent L. Womack, 2004. "Quid Pro Quo in IPOs: Why Book-building is Dominating Auctions," Working Papers 2004.150, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  10. Lidén, Erik R., 2004. "Are Underwriter-Analysts More Informed? Scandinavian Evidence," Working Papers in Economics 132, Göteborg University, Department of Economics, revised 19 Nov 2004. [Downloadable!]
  11. Ingo Walter, 2003. "Conflicts of Interest and Market Discipline Among Financial Services Firms," Working Papers 03-24, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  12. Mehran, Hamid & Stulz, Rene M., 2006. "The Economics of Conflicts of Interest in Financial Institutions," Working Paper Series 2006-21, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  13. Ljungqvist, Alexander P & Marston, Felicia & Starks, Laura T & Wei, Kelsey D. & Yan, Hong, 2005. "Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors," CEPR Discussion Papers 5001, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. Steven Drucker, 2005. "Information asymmetries and the effects of banking mergers of firm-bank relationships," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 140-147. [Downloadable!]
  15. Luca Benzoni & Carola Schenone, 2007. "Conflict of interest and certification in the U.S. IPO market," Working Paper Series WP-07-09, Federal Reserve Bank of Chicago. [Downloadable!]
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