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Brokerage House Initial Public Offerings and Analyst Forecast Quality

Author

Listed:
  • Mark Bradshaw

    (Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467)

  • Michael Drake

    (School of Accountancy, Marriott School of Business, Brigham Young University (BYU), Provo, Utah 84604)

  • Joseph Pacelli

    (Accounting and Management Unit, Harvard Business School, Boston, Massachusetts 02163)

  • Brady Twedt

    (Lundquist College of Business, University of Oregon, Eugene, Oregon 97408)

Abstract

We examine how brokerage firm initial public offerings (IPOs) influence the research quality of sell-side analysts employed by the brokerage. Our main results focus on earnings forecast bias and absolute forecast errors as proxies for research quality. Using a staggered difference-in-differences analysis, we document significant decreases in forecast bias and absolute forecast error during the two-year period centered on the analysts’ brokerage house IPO. In additional analyses, we explore several potential explanations for the short-term benefits of brokerage house IPOs. We find some evidence that IPOs delay the departure of more talented analysts and that the effects are more concentrated among analysts and brokers that face more scrutiny.

Suggested Citation

  • Mark Bradshaw & Michael Drake & Joseph Pacelli & Brady Twedt, 2023. "Brokerage House Initial Public Offerings and Analyst Forecast Quality," Management Science, INFORMS, vol. 69(11), pages 7079-7094, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:7079-7094
    DOI: 10.1287/mnsc.2022.4610
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