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Underwriting relationships and analyst independence in Europe.

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

Authors

Phillip J. McKnight

Manouchehr Tavakoli

Charlie Weir

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.

Journal Article Type Article
Publication Date Aug 1, 2010
Journal Financial markets: institutions and instruments
Print ISSN 0963-8008
Electronic ISSN 1468-0416
Publisher Wiley Open Access
Peer Reviewed Peer Reviewed
Volume 19
Issue 3
Pages 189-213
Institution 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
DOI https://doi.org/10.1111/j.1468-0416.2010.00157.x
Keywords Analyst forecasts; Stock recommendations; IPOs; Underwriter

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