Discussion Paper Details

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Title: Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations

Author(s): Alexander P. Ljungqvist, Felicia Marston and William J Wilhelm Jr

Publication Date: December 2003

Keyword(s): analyst behaviour, commercial banks, glass-steagall act and underwriting

Programme Area(s): Financial Economics

Abstract: We investigate directly whether analyst behaviour influenced the likelihood of banks winning underwriting mandates for a sample of 16,625 US debt and equity offerings sold between December 1993 and June 2002. We control for the strength of the issuer?s investment-banking relationships with potential competitors for the mandate, prior lending relationships, and the endogeneity of analyst behaviour and the bank?s decision to provide analyst coverage. Contrary to recent allegations, we find no evidence that aggressive analyst recommendations or recommendation upgrades increased a bank?s probability of winning an underwriting mandate once we control for analysts? career concerns. In fact, the opposite appears to be the case. We interpret this finding as evidence that credibility is central to resolving information frictions associated with securities offerings. Overly aggressive analyst behaviour undermines credibility.

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Bibliographic Reference

Ljungqvist, A, Marston, F and Wilhelm Jr, W. 2003. 'Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations'. London, Centre for Economic Policy Research.