Working Paper: CEPR ID: DP4162
Authors: Alexander P. Ljungqvist; Felicia Marston; William J. Wilhelm Jr.
Abstract: We investigate directly whether analyst behaviour influenced the likelihood of banks winning underwriting mandates for a sample of 16,625 US debt and equity offerings sold between December 1993 and June 2002. We control for the strength of the issuer?s investment-banking relationships with potential competitors for the mandate, prior lending relationships, and the endogeneity of analyst behaviour and the bank?s decision to provide analyst coverage. Contrary to recent allegations, we find no evidence that aggressive analyst recommendations or recommendation upgrades increased a bank?s probability of winning an underwriting mandate once we control for analysts? career concerns. In fact, the opposite appears to be the case. We interpret this finding as evidence that credibility is central to resolving information frictions associated with securities offerings. Overly aggressive analyst behaviour undermines credibility.
Keywords: analyst behaviour; commercial banks; Glass-Steagall Act; underwriting
JEL Codes: G21; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Analyst behavior (G41) | Likelihood of winning underwriting mandates (G22) |
| Aggressive analyst recommendations (G24) | Likelihood of winning underwriting mandates (G22) |
| Strength of bank-issuer relationship (G21) | Likelihood of winning underwriting mandates (G22) |
| Reputation of analysts (G24) | Aggressive recommendations (D74) |
| Strength of prior lending relationships (G21) | Likelihood of winning underwriting mandates (G22) |