The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00719.x
MICHAEL T. CLIFF, DAVID J. DENIS
We report that initial public offering (IPO) underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all‐star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing and to controls for the endogeneity of underpricing and analyst coverage. In addition, we find that the probability of switching underwriters between IPO and seasoned equity offering is negatively related to the unexpected amount of post‐IPO analyst coverage. These findings are consistent with the hypothesis that underpricing is, in part, compensation for expected post‐IPO analyst coverage from highly ranked analysts.