| This dissertation examines how investment banks' pre-IPO equity investments in IPO firms affect the post-IPO research coverage of affiliated security analysts. Specifically, using a sample of U.S. IPOs between 1993 and 2006, I examine whether analysts at investment banks that provide both underwriting services and equity investments to issuing firms (i.e., investing underwriter analysts) behave differently from (1) analysts at investment banks that provide underwriting services but not equity investments to issuing firms (i.e., non-investing underwriter analysts), and (2) analysts at investment banks that provide neither underwriting services nor equity investments to issuing firms (i.e., unaffiliated analysts). I also examine the differential impact of two sets of regulatory policies on those three analyst groups. The first set of regulations includes NASD Rule 2711, NYSE Rule 472, and NYSE Rule 351, all of which at least partially address analyst conflicts of interest. The second set of policy includes Regulation Fair Disclosure (Reg FD), which addresses information asymmetry among analysts.; Research methods used are matched-pair design, non-matched pair design, and regression analysis. The empirical results show that, prior to the enactment of regulations addressing analyst conflicts of interest, investing underwriter analysts issue more optimistic long-term earnings growth forecasts than non-investing underwriter analysts, although they do not differ significantly in terms of stock recommendations issued. Furthermore, I find that underwriter analysts issue more optimistic stock recommendations and long-term growth forecasts than unaffiliated analysts. Moreover, I find evidence that regulations addressing analyst conflicts of interest have strongest impact on investing underwriter analysts. In the post-regulation period, investing underwriter analysts' recommendations and growth forecasts become less optimistic than those issued by non-investing underwriter analysts, and are no longer significantly different from those issued by unaffiliated analysts.; In terms of differences in analyst short-term forecasts, I find evidence that, prior to the enactment of Reg FD, investing underwriter analysts issue less optimistic, but more accurate current and subsequent year earnings and revenue forecasts than non-investing underwriter and unaffiliated analysts. However, their information advantage disappears in the post-Reg FD period in that their short-term forecasts are no longer significant different from those of non-underwriter and unaffiliated analysts. |
