Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations

Abstract

We investigate directly whether analyst behavior influenced the likelihood of banks winning underwriting mandates for a sample of 16,456 U.S. debt and equity offerings sold between December 1993 and June 2002. We control for the strength of the issuer’s investment-banking relationships with potential competitors for the mandate and for the endogeneity of analyst behavior and the bank’s decision to provide analyst coverage. Contrary to recent allegations, we find no evidence that aggressive analyst recommendations or recommendation upgrades increased a bank’s probability of winning an underwriting mandate once we control for analysts’ career concerns. In fact, the opposite appears to be the case. Nor do we find that banks competed successfully for equity deals on the basis of their ability to make low-cost corporate loans available. Only among debt deals sold since the deregulation of commercial banks is there evidence of aggressive recommendations helping banks to win underwriting mandates.