Analyst coverage and IPO management forecasts
Description
Given the all-importance of analyst coverage for IPO firms, we examine the interaction between the initiation of analyst coverage and management forecast disclosure in IPO prospectuses. We find that IPO firms that provide a prospectus forecast are more likely to receive coverage (and earlier), particularly from lower quality analysts. The depth of coverage, measured by the number of analysts issuing a recommendation on the firm, is also greater for forecasters. These results hold after controlling for potential endogeneity due to simultaneity in management decision to provide a forecast and analysts' decision to cover the firm. Further analyses show that reputation concerns matter to analyst coverage decisions — conditional on firms providing a prospectus forecast, the likelihood of receiving coverage decreases with the magnitude of the absolute management forecast error. There is evidence of quid pro quo where the analyst working for the underwriter of the IPO aligns her forecast with the management forecast more than unaffiliated analysts. Insofar as management forecasts are important to coverage decision and analyst coverage is valuable, our research has important implications for strengthening the safe harbour provision for prospectus forecasts in litigious environments such as that in the U.S.
Impact and interest:
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ID Code: | 221475 | ||||
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Item Type: | Contribution to Journal (Journal Article) | ||||
Refereed: | Yes | ||||
ORCID iD: |
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Measurements or Duration: | 15 pages | ||||
Keywords: | Analyst Coverage, IPOs, Initiations, Management Forecasts, Timing | ||||
DOI: | 10.1016/j.jcorpfin.2016.04.005 | ||||
ISSN: | 0929-1199 | ||||
Pure ID: | 33051498 | ||||
Divisions: | Past > QUT Faculties & Divisions > QUT Business School Current > Schools > School of Economics & Finance |
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Copyright Owner: | Consult author(s) regarding copyright matters | ||||
Copyright Statement: | This work is covered by copyright. Unless the document is being made available under a Creative Commons Licence, you must assume that re-use is limited to personal use and that permission from the copyright owner must be obtained for all other uses. If the document is available under a Creative Commons License (or other specified license) then refer to the Licence for details of permitted re-use. It is a condition of access that users recognise and abide by the legal requirements associated with these rights. If you believe that this work infringes copyright please provide details by email to qut.copyright@qut.edu.au | ||||
Deposited On: | 06 Nov 2021 15:17 | ||||
Last Modified: | 31 Jul 2024 21:17 |
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