IDEAS home Printed from
   My bibliography  Save this article

Analysts' Selective Coverage and Subsequent Performance of Newly Public Firms




This study examines the ability of analysts to forecast future firm performance, based on the selective coverage of newly public firms. We hypothesize that the decision to provide coverage contains information about an analyst's underlying expectation of a firm's future prospects. We extract this expectation by obtaining "residual analyst coverage" from a model of initial analyst following. We document that in the three subsequent years, initial public offerings with high residual coverage have significantly better returns and operating performance than those with low residual coverage. This evidence indicates analysts have superior predictive abilities and selectively provide coverage for firms about which their true expectations are favorable. Copyright 2006 by The American Finance Association.

Suggested Citation

  • Somnath Das & Re-Jin Guo & Huai Zhang, 2006. "Analysts' Selective Coverage and Subsequent Performance of Newly Public Firms," Journal of Finance, American Finance Association, vol. 61(3), pages 1159-1185, June.
  • Handle: RePEc:bla:jfinan:v:61:y:2006:i:3:p:1159-1185

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:oup:jeurec:v:15:y:2017:i:4:p:877-909. is not listed on IDEAS
    2. Feng, Xunan & Johansson, Anders C., 2015. "Can mutual funds pick stocks in China? Evidence from the IPO market," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 170-186.
    3. Bradley, Daniel & Chan, Konan & Kim, Joonghyuk & Singh, Ajai, 2008. "Are there long-run implications of analyst coverage for IPOs?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1120-1132, June.
    4. Boissin, Romain, 2012. "Orphan versus non-orphan IPOs: the difference analyst coverage makes," MPRA Paper 41584, University Library of Munich, Germany.
    5. repec:eee:advacc:v:30:y:2014:i:1:p:95-105 is not listed on IDEAS
    6. Itay Goldstein & Alexander Guembel & James Dow, 2008. "Incentives for Information Production in Markets where Prices Affect Real Investment," 2008 Meeting Papers 270, Society for Economic Dynamics.
    7. Kaustia, Markku & Rantala, Ville, 2015. "Social learning and corporate peer effects," Journal of Financial Economics, Elsevier, vol. 117(3), pages 653-669.
    8. Romain Boissin, 2013. "Orphan versus non-orphan IPOs: the difference analyst coverage makes," Chapters,in: Handbook of Research on IPOs, chapter 13, pages 257-274 Edward Elgar Publishing.
    9. Kovner, Anna, 2012. "Do underwriters matter? The impact of the near failure of an equity underwriter," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 507-529.
    10. repec:eee:jfinec:v:124:y:2017:i:2:p:331-348 is not listed on IDEAS
    11. Romain Boissin & Patrick Sentis, 2014. "Long-run performance of IPOs and the role of financial analysts: some French evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 20(2), pages 125-149, February.
    12. G. Tyge Payne & George S. Benson & David L. Finegold, 2009. "Corporate Board Attributes, Team Effectiveness and Financial Performance," Journal of Management Studies, Wiley Blackwell, vol. 46(4), pages 704-731, June.
    13. Ka Wai Choi & Xiaomeng Chen & Sue Wright & Hai Wu, 2014. "Analysts' Forecasts Following Forced CEO Changes," Abacus, Accounting Foundation, University of Sydney, vol. 50(2), pages 146-173, June.
    14. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    15. Chatalova, Natalia & How, Janice C.Y. & Verhoeven, Peter, 2016. "Analyst coverage and IPO management forecasts," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 263-277.
    16. Chengru Hu & Wei Jiang & Cheng-few Lee, 2013. "Managerial flexibility and the wealth effect of new product introductions," Review of Quantitative Finance and Accounting, Springer, vol. 41(2), pages 273-294, August.
    17. Boubakri, Narjess & Bouslimi, Lobna, 2016. "Directors’ and officers’ liability insurance and analyst forecast properties," Finance Research Letters, Elsevier, vol. 19(C), pages 22-32.
    18. Alessandra Guariglia & Robert Carpenter, 2007. "Investment behavior, observable expectations, and internal funds: a comment on Cummins et al. (AER, 2006)," Economics Bulletin, AccessEcon, vol. 5(12), pages 1-12.
    19. Ruben M.T. Peixinho & Richard J. Taffler, 2011. "Are analysts misleading investors? The case of goingconcern opinions," CEFAGE-UE Working Papers 2011_22, University of Evora, CEFAGE-UE (Portugal).
    20. Hoechle, Daniel & Karthaus, Larissa & Schmid, Markus, 2017. "The Long-Term Performance of IPO’s, Revisited," Working Papers on Finance 1706, University of St. Gallen, School of Finance.
    21. Chang-Yi Hsu & Jean Yu & Shiow-Ying Wen, 2013. "The Analysts’ Forecast of IPO Firms during the Global Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 673-682.
    22. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    23. Ding, Xiaoya (Sara) & Ni, Yang & Rahman, Abdul & Saadi, Samir, 2015. "Housing price growth and the cost of equity capital," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 283-300.
    24. O'Brien, Patricia C. & Tan, Hongping, 2015. "Geographic proximity and analyst coverage decisions: Evidence from IPOs," Journal of Accounting and Economics, Elsevier, vol. 59(1), pages 41-59.
    25. Avdis, Efstathios, 2016. "Information tradeoffs in dynamic financial markets," Journal of Financial Economics, Elsevier, vol. 122(3), pages 568-584.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:61:y:2006:i:3:p:1159-1185. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.