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Are financial analysts of IPO firms under pressure: the European evidence

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  • Boissin, Romain

Abstract

Long run returns of IPO firms’ recommendations in Europe reveal possible conflicts of interest and pressures faced by financial analysts over the 1991-2005 period. Nevertheless, recent European legislations about investment research have led to better long run performance of IPO firms’ recommendations issued by affiliated analysts over the 2001-2005 period. Findings reveal that market participants do not fully incorporate the perceived value of recommendations. Indeed, difference between affiliated and unaffiliated analysts’ recommendations is statistically significant over one, three or five year horizon. The timing of recommendations specifies that investors pay more attention to affiliated analysts’ recommendations made later in the aftermarket. This result could suggest that the later is the recommendation made in the IPO aftermarket the weaker is the pressure faced by affiliated analysts.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36057.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36057

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Keywords: Initial Public Offering; conflicts of interest; financial analysts; long run performance;

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  1. Patricia C. O'Brien & Maureen F. Mcnichols & Lin Hsiou-Wei, 2005. "Analyst Impartiality and Investment Banking Relationships," Journal of Accounting Research, Wiley Blackwell, Wiley Blackwell, vol. 43(4), pages 623-650, 09.
  2. Narasimhan Jegadeesh & Joonghyuk Kim & Susan D. Krische & Charles M. C. Lee, 2004. "Analyzing the Analysts: When Do Recommendations Add Value?," Journal of Finance, American Finance Association, American Finance Association, vol. 59(3), pages 1083-1124, 06.
  3. Barber, Brad M. & Lehavy, Reuven & Trueman, Brett, 2007. "Comparing the stock recommendation performance of investment banks and independent research firms," Journal of Financial Economics, Elsevier, Elsevier, vol. 85(2), pages 490-517, August.
  4. Annemarie Sapusek, 2000. "Benchmark-Sensitivity Of Ipo Long-Run Performance: An Empirical Study For Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, LMU Munich School of Management, vol. 52(4), pages 374-405, October.
  5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(1), pages 3-56, February.
  6. Ohad Kadan & Leonardo Madureira & Rong Wang & Tzachi Zach, 2009. "Conflicts of Interest and Stock Recommendations: The Effects of the Global Settlement and Related Regulations," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(10), pages 4189-4217, October.
  7. Michaely, Roni & Womack, Kent L, 1999. "Conflict of Interest and the Credibility of Underwriter Analyst Recommendations," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 12(4), pages 653-86.
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