Underwriting relationships, analysts' earnings forecasts and investment recommendations

1998/02/01 by Hsiou-wei Lin, Hsiou‐Wei William Lin, Maureen F. McNichols +1 · 4 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Auditing, Earnings Management, Governance #Financial Markets and Investment Strategies #Financial Reporting and Valuation Research

paper · pdf · doi:10.1016/s0165-4101(98)00016-0

openalex publication_date 1998/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31

Abstract

We examine the effect of underwriting relationships on analysts' earnings forecasts and recommendations. Lead and co-underwriter analysts' growth forecasts and recommendations are significantly more favorable than those made by unaffiliated analysts, although their earnings forecasts are not generally greater. Investors respond similarly to lead underwriter and unaffiliated `Strong buy' and `Buy' recommendations, but three-day returns to lead underwriter `Hold' recommendations are significantly more negative than those to unaffiliated `Hold' recommendations. The findings suggest investors expect lead analysts are more likely to recommend `Hold' when `Sell' is warranted. The post-announcement returns following affiliated and unaffiliated analysts' recommendations are not significantly different.

Citations

• The Effect of Investment Banking Relationships on Financial Analysts' Earnings Forecasts and Investment Recommendations*
• A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity

Cited by

• Which types of analyst firms are more optimistic?
• The relation between corporate financing activities, analysts’ forecasts and stock returns
• Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature
• An Empirical Study of Financial Analysts Earnings Forecast Accuracy