Underwriting relationships and analyst independence in Europe.

McKnight, Phillip J.; Tavakoli, Manouchehr; Weir, Charlie

Abstract

This paper examines the accuracy of security analysts' earnings forecasts and stock recommendations for firms in 13 European countries. We document at least three key findings. First, we find strong evidence that lead and co-lead underwriter analysts' earnings estimates and stock recommendations are significantly more optimistic than those provided by unaffiliated analysts. Second, we find that lead and co-lead underwriter analysts' earnings forecast and stock recommendations are significantly more optimistic for underwriter stocks than for those they provide for other stocks. Third, we also find evidence that these biases found within earnings forecasts and stock recommendations are not driven by one particular country. In short, these findings suggest that affiliated analysts are more optimistic perhaps to maintain investment banking relations.

Citation

MCKNIGHT, P.J., TAVAKOLI, M. and WEIR, C. 2010. Underwriting relationships and analyst independence in Europe. Financial markets: institutions and instruments [online], 19(3), pages 189-213. Available from: https://doi.org/10.1111/j.1468-0416.2010.00157.x

• Journal Article Type: Article
• Acceptance Date: Jul 2, 2010
• Online Publication Date: Jul 2, 2010
• Publication Date: Aug 31, 2010
• Deposit Date: Oct 11, 2016
• Publicly Available Date: Oct 11, 2016
• Journal: Financial markets: institutions and instruments
• Print ISSN: 0963-8008
• Electronic ISSN: 1468-0416
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 19
• Issue: 3
• Pages: 189-213
• DOI: https://doi.org/10.1111/j.1468-0416.2010.00157.x
• Keywords: Analyst forecasts; Stock recommendations; IPOs; Underwriter
• Public URL: http://hdl.handle.net/10059/1891