Brokerage House Initial Public Offerings and Analyst Forecast Quality

Mark Bradshaw (), Michael Drake (), Joseph Pacelli () and Brady Twedt ()
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Mark Bradshaw: Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467
Michael Drake: School of Accountancy, Marriott School of Business, Brigham Young University (BYU), Provo, Utah 84604
Joseph Pacelli: Accounting and Management Unit, Harvard Business School, Boston, Massachusetts 02163
Brady Twedt: Lundquist College of Business, University of Oregon, Eugene, Oregon 97408

Management Science, 2023, vol. 69, issue 11, 7079-7094

Abstract: We examine how brokerage firm initial public offerings (IPOs) influence the research quality of sell-side analysts employed by the brokerage. Our main results focus on earnings forecast bias and absolute forecast errors as proxies for research quality. Using a staggered difference-in-differences analysis, we document significant decreases in forecast bias and absolute forecast error during the two-year period centered on the analysts’ brokerage house IPO. In additional analyses, we explore several potential explanations for the short-term benefits of brokerage house IPOs. We find some evidence that IPOs delay the departure of more talented analysts and that the effects are more concentrated among analysts and brokers that face more scrutiny.

Keywords: initial public offering; financial institutions; investment; sell-side analysts; forecasting; research quality (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:11:p:7079-7094

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