Abstract
AbstractWe study analysts' strategic distortion during different stages of initial public offering (IPO) waves. We find analysts affiliated with leading underwriters time the market and “speak in two tongues” in recommendations and forecasts when they balance between conflicting interests of corporate finance clients and brokerage clients. They are more optimistic than nonaffiliated analysts in recommendations, but not in earnings forecasts in the early stages of IPO waves. More positive recommendations help them win a larger share of the booming IPO business. This distortion is absent in the late stages of IPO waves. We also find that the market discounts strong‐buy recommendations from affiliated analysts in the early stages of IPO waves.
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