Events

Prof. Andy Call
School Director & Professor
W. P. Carey School of Accountancy
Arizona State University

The SEC limits sell-side analysts’ research activities on IPO firms both before and immediately after going public (the IPO quiet period). We examine whether, in spite of these restrictions, analysts serve an indirect information role during the quiet period through their research of rival firms in the IPO firm’s industry. Our evidence suggests analysts provide informative signals about IPO firms during the quiet period through their stock recommendation revisions of rival firms. In particular, we find that analysts revise the stock recommendations of rival firms in response to IPO news and that these recommendation changes are predictive of future IPO performance. We also find that IPO investors trade on this information on the IPO date. However, we find that only institutional investors make use of this information, and that retail investors are inattentive to information in analyst research of rival firms, except when the analyst is affiliated with the IPO firm or when the rival firm is highly visible. Our findings suggest that, even during the IPO quiet period, analysts provide informative signals about IPO firms through their coverage of rival firms.