ANALYST FOLLOWING OF INITIAL PUBLIC OFFERINGS

We examine data on analyst following for a sample of initial public of ferings completed between 1975 and 1987 to see how they relate to thre e well-documented IPO anomalies. We find that higher underpricing lead s to increased analyst following. Analysts are overoptimistic about th e earnings potential and long term growth prospects of recent IPOs. Mo re firms complete IPOs when analysts are particularly optimistic about the growth prospects of recent IPOs. In the long run, IPOs have bette r stock performance when analysts ascribe low growth potential rather than high growth potential. These results suggest that the anomalies m ay be partially driven by overoptimism.