Hw. Lin et Mf. Mcnichols, Underwriting relationships, analysts' earnings forecasts and investment recommendations, J ACCOUNT E, 25(1), 1998, pp. 101-127
We examine the effect of underwriting relationships on analysts' earnings f
orecasts and recommendations. Lead and co-underwriter analysts' growth fore
casts and recommendations are significantly more favorable than those made
by unaffiliated analysts, although their earnings forecasts are not general
ly greater. Investors respond similarly to lead underwriter and unaffiliate
d 'Strong buy' and 'Buy' recommendations, but three-day returns to lead und
erwriter 'Hold' recommendations are significantly more negative than those
to unaffiliated 'Hold' recommendations. The findings suggest investors expe
ct lead analysts are mon likely to recommend 'Hold' when 'Sell' is warrante
d. The post-announcement returns following affiliated and unaffiliated anal
ysts' recommendations are not significantly different. (C) 1998 Elsevier Sc
ience B.V. All rights reserved. JEL classification: M3; G14; G24.