The consequences to analyst involvement in the IPO process: Evidence surrounding the JOBS Act

The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors pur...

Full description

Saved in:
Bibliographic Details
Published in:Journal of accounting & economics 2018-04, Vol.65 (2-3), p.302-330
Main Authors: Dambra, Michael, Field, Laura Casares, Gustafson, Matthew T., Pisciotta, Kevin
Format: Article
Language:English
Subjects:
Conflicts of interest
Equity analyst research
IPOs
JOBS Act
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm's subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2017.12.001