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

Author

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

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.

Suggested Citation

  • Bradley, Daniel & Clarke, Jonathan & Cooney, John, 2012. "The impact of reputation on analysts’ conflicts of interest: Hot versus cold markets," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2190-2202.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2190-2202
    DOI: 10.1016/j.jbankfin.2012.03.022
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    References listed on IDEAS

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    Cited by:

    1. Premti, Arjan & Garcia-Feijoo, Luis & Madura, Jeff, 2017. "Information content of analyst recommendations in the banking industry," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 35-47.
    2. repec:spr:eurasi:v:7:y:2017:i:2:d:10.1007_s40821-016-0049-1 is not listed on IDEAS
    3. repec:eee:ecolet:v:163:y:2018:i:c:p:72-74 is not listed on IDEAS
    4. Jeremy Burke & Angela Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.

    More about this item

    Keywords

    Analysts’ recommendations; Investment banking; Conflicts of interest;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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