Conflict of Interest and the Credibility of Underwriter Analyst Recommendations

Janet Yuen

doi:10.2469/dig.v30.n2.651

Conflict of Interest and the Credibility of Underwriter Analyst Recommendations

CFA Digest ◽

10.2469/dig.v30.n2.651 ◽

2000 ◽

Vol 30 (2) ◽

pp. 3-5

Author(s):

Janet Yuen

Keyword(s):

Conflict Of Interest ◽

Analyst Recommendations

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Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs

Sustainability ◽

10.3390/su12051899 ◽

2020 ◽

Vol 12 (5) ◽

pp. 1899

Author(s):

Juyoun Ryoo ◽

Cheolwoo Lee ◽

Jin Q Jeon

Keyword(s):

Initial Public Offerings ◽

Conflict Of Interest ◽

Organizational Form ◽

Analyst Recommendations ◽

Public Offerings ◽

Investment Value ◽

Analyst Behavior ◽

Syndicate Structure ◽

Analyst Optimism

Recently, a new organizational form of syndicate—multiple lead underwriter (MLU) initial public offerings (IPOs)—has emerged in IPOs. In addition to the increased deal complexity, lead underwriters in MLU IPOs face a new competition between them after underwriter selection, which is not present in single lead underwriter (SLU) IPOs. It is therefore questionable whether recommendations by analysts from lead underwriters of the MLU IPOs are as sustainable as those of the SLU IPOs. We examine IPO recommendations to capture how this new syndicate structure affects analyst behavior in terms of analyst optimism and investment value. In contrast to the popular conflict of interest perspective, our findings point to the notion that the new syndicate structure suppresses bias in recommendations and that reputation upholding incentive dominates pressure from competition. MLU-affiliated analysts are not more optimistic and provide more informative research coverage whose informativeness, however, fades away shortly after the recommendation releases. Our findings overall indicate the existence of sustainability in the MLU IPO recommendations.

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