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Underwriting Relationships and Analyst Independence in Europe

Research output: Contribution to journalArticle

Author(s)

P McKnight, Manouchehr Tavakoli, C Weir

School/Research organisations

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.
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Details

Original languageEnglish
Pages (from-to)189-213
Number of pages25
JournalFinancial Markets, Institutions and Instruments
Volume19
Issue number3
Early online date2 Jul 2010
DOIs
Publication statusPublished - Aug 2010

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