Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?
Article first published online: 27 NOV 2005
The Journal of Finance
Volume 59, Issue 6, pages 2871–2901, December 2004
How to Cite
CLIFF, M. T. and DENIS, D. J. (2004), Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?. The Journal of Finance, 59: 2871–2901. doi: 10.1111/j.1540-6261.2004.00719.x
- Issue published online: 27 NOV 2005
- Article first published online: 27 NOV 2005
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.