تاثیر تغییرات شغلی تحلیلگران تمام ستاره بر انتخاب پوششی ایشان و جریان معامله سرمایه گذاری بانکی

Using a sample of all-star analysts who switch investment banks, we examine (1) whether analyst behavior is influenced by banking relationships and (2) whether analyst behavior affects investment banking deal flow. Although the stock coverage decision depends on the relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity transactions. For debt and M&A transactions, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

Is investment banking deal flow affected by analyst behavior? Anecdotal evidence from the popular press suggests that it is: David Komansky, former chief executive of Merrill Lynch, and Dennis Kozlowski discussed ways to improve research coverage of Tyco and hiring an analyst the company liked, according to an e-mail introduced at the ex-Tyco chief's trial. After Merrill hired the analyst, Phua Young, Tyco immediately responded by awarding the investment bank work on a $2bn bond offering, according to an e-mail sent in 1999 to Mr. Komansky by Samuel Chapin, Merrill's vice-chairman. ‘To demonstrate the impact this hire has on our relationship, Dennis Kozlowski called me on Phua's first day of work to award us the lead management of a $2.1bn bond offering,’ Mr. Chapin wrote in the e-mail of August 31 1999… 1 Moreover, is analyst behavior influenced by investment banking relationships between the bank and the firms the analyst covers? The popular press suggests that analysts might be pressured to cover firms that they would not otherwise cover, as well as give favorable coverage to firms that they would otherwise downgrade.2 In this paper, we analyze a sample of 216 cases in which an Institutional Investor All-America Research Team analyst (“all-star” hereafter) moves from one investment bank to another over the 1988 to 1999 period. We investigate two questions. First, we examine whether the all-star's behavior changes when he switches investment banks. An all-star who moves from Goldman Sachs to Merrill Lynch, for example, might choose to continue covering only those stocks that are likely to generate investment banking business for Merrill. In addition, the analyst might issue more favorable reports for Merrill clients than when at Goldman. Hence, we study whether, in the period following a job change, all-stars choose to continue covering stocks and whether they become more optimistic about the stocks they cover, based on the relationship between the firms being covered and the investment bank employing the all-star. Second, we examine whether analyst reputation and coverage affect investment banking deal flow after the all-star joins the new bank. We investigate all-star job changes, instead of job changes across all analysts, because prior research by Krigman, Shaw, and Womack (2001) and Dunbar (2000) documents that firms value all-star research coverage. Specifically, Krigman, Shaw, and Womack find that the perceived quality of coverage, as proxied by all-star coverage, is an important driver in a firm's decision to change the lead underwriter in a follow-on offering. Dunbar (2000) finds a strong positive relation between changes in an investment bank's Institutional Investor All-America Research Team ranking and subsequent changes in the bank's market share in the initial public offering market. If we find no effect on investment bank market share when an all-star analyst moves, it is unlikely we will find an effect for non-all stars. We examine both capital-raising (debt and equity underwriting) and corporate control (M&A) transactions to develop a comprehensive understanding of the relations among stock coverage, analyst reputation, investment bank reputation, and deal flow. With respect to our first research question, our results show that an all-star analyst's decision to cover a firm is influenced by the investment bank's relationship with the firm. In particular, the all-star is significantly more likely to continue covering a stock that is being covered at the new bank when that bank also has a prior investment banking relationship (underwriting or M&A advisory) with the firm. We find no evidence, however, that analysts change their optimism levels and recommendation ratings for the firms they cover at the new bank. At the median level, all-stars do not become more optimistic after a job change, and the difference in their earnings forecasts, before and after the job change, is not related to the existence of an investment banking relationship with the client firms. In addition, recommendation levels, both before and after the analyst changes jobs, do not suggest that analysts issue significantly more positive recommendations after changing jobs. In a separate sample of non-all-star job changes, we obtain similar findings. Turning to our second research question, we find that the bank hiring the all-star significantly increases its market share in the industry covered by the analyst, relative to the bank losing the all-star. We separately examine the determinants of relative market share for bond and equity underwriting and corporate control transactions in a multivariate framework wherein we control for investment bank reputation. Our results show that proxies for all-star reputation, such as the timeliness and frequency of the all-star's earnings forecasts, have a significantly positive impact on the relative market share of the two banks for equity underwriting transactions, but not for debt or M&A transactions. We find no evidence that optimism in earnings forecasts (deviation of the analyst's earnings forecast above consensus) affects relative market share for either capital-raising or corporate control transactions. Finally, the new business is not generated by clients of the analyst at the original bank who follow the all-star to the new bank; rather, it comes from new firms that the all-star is significantly more likely to cover at the new investment bank. Our paper contributes to the existing academic literature on analyst behavior in two ways. First, while the extant literature reports some evidence that analysts affiliated with banks and other financial institutions tend to make more optimistic forecasts and recommendations than unaffiliated analysts,3 there is no direct evidence that this difference in behavior is due specifically to relationships between the investment bank and the firms the analyst chooses to cover. Our analysis of changes in analyst behavior surrounding their job changes enables us to examine whether investment bank pressure influences analyst recommendations and forecasts. We find that it does not. Second, there is no direct evidence in the literature on whether analysts are able to increase deal flow (underwriting and M&A transactions) for their respective banks. We show that analysts are instrumental in winning deal flow for equity underwriting, but not for debt or M&A transactions. Our results are inconsistent with recent allegations in the popular press that analysts have helped generate investment banking deal flow by issuing overly positive recommendations. To the extent that such allegations are true, our results suggest that they cannot be generalized across all analysts or types of transactions. The remainder of the paper is organized as follows. Section 2 discusses the data and describes the sample. Section 3 examines both the analyst stock coverage decision and changes in analyst behavior in the period surrounding job changes by all-stars. Section 4 examines the relation between analyst coverage and investment banking deal flow. Finally, Section 5 concludes.

We examine a sample of 216 cases in which an Institutional Investor All-America Research Team (all-star) analyst moves from one investment bank to another between 1988 and 1999 to answer the following two questions: Is analyst coverage influenced by investment banking relationships? Does analyst behavior, analyst reputation, and/or investment bank reputation influence deal flow? Using a comprehensive data set of investment banking deals (underwriting and corporate control transactions), we find that all-star coverage choices do indeed depend on investment banking relationships between the firm and the all-star’s bank. An all-star is more likely to retain/add coverage of larger glamour firms that have pre-existing investment banking relationships with the bank the all-star is moving to. However, the all-star’s behavior does not change after he changes jobs. There are no changes in optimism bias, forecast accuracy, or forecast timeliness following the job change. The all-star is not significantly more likely to be more optimistic in his recommendations, that is, recommendation levels are at consensus, both before and following job change. Our results are inconsistent with recent allegations in the popular press that analysts have helped generate investment banking deal flow by being extremely optimistic in their recommendations. To the extent that these allegations are true, our results suggest that they cannot be generalized across all analysts. Finally, even though analyst behavior does not change, the new bank does attract a significantly larger industry market share of capital-raising and M&A deals after the arrival of the all-star, relative to the bank the analyst leaves. Yet, after controlling for bank reputation, all-star reputation, as measured by earnings forecast frequency and timeliness, influences only equity underwriting transactions. Variables measuring the extent to whichanalysts make optimistic earnings forecasts or recommendations do not influence deal flow. The new business does not come from client firms at the old bank who follow the all- star to the new bank; rather it seems to come from firms that the all-star is more likely to cover than at his original bank. In other words, our results suggest that coverage is more important than the degree of optimism of that coverage.