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Working Paper
Why do analysts continue to provide favorable coverage for seasoned stocks?
Research has documented that the first report an investment bank affiliated analyst issues on a newly listed stock tends to be favorable. Our analysis of 16,824 relationships between analyst teams and established listed companies during 1995-2003 indicates that analyst coverage decisions of seasoned stocks are influenced by their affiliations with investment banks and mutual funds. Controlling for market returns, stock characteristics, and a variety of performance indicators, we find analysts are more likely to issue favorable reports when the stock is held by affiliated mutual funds. The ...
Working Paper
Affiliated mutual funds and analyst optimism
Prior studies have shown that investment banking affiliations place pressure on analysts to produce optimistic recommendations on the investment bank?s stock-clients. Our analysis of a large sample of recommendations issued from 1995 through 2003 indicates that a mutual fund affiliation also affects analysts? research. That is, analysts are likely to look favorably at stocks held by the affiliated mutual funds. Controlling for a variety of factors including the investment banking affiliation, we find that the greater the portfolio weight of a stock for the affiliated mutual funds, the more ...