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 16,625 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, prior lending relationships, and the endogeneity of analyst behavior and the bank’s decision to provide analyst coverage. We find no evidence that aggressive analyst recommendations or recommendation upgrades increased their bank’s probability of winning an underwriting mandate after controlling for analysts’ career concerns and bank reputation. Our findings might be interpreted as suggesting that bank and analyst credibility are central to resolving information frictions associated with securities offerings.