Underwriting relationships, analysts' earnings forecasts and investment recommendations

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.