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iMIT Sloan School of Management
MIT Sloan Working Paper 4467-04
February 2004

Investment Banking and Analyst Objectivity:
Evidence from Forecasts and Recommendations of Analysts Affiliated with M&A Advisors

Adam Kolasinski and S.P. Kothari

© 2004 by Adam Kolasinski and S.P. Kothari.
All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission, provided that full credit including © notice is given to the source.

This paper also can be downloaded without charge from the
Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=499068 Investment Banking and Analyst Objectivity:
Evidence from Forecasts and Recommendations of
Analysts Affiliated with M&A Advisors
By

Adam C. Kolasinski
MIT Sloan School of Management
50 Memorial Drive, E52-458
Cambridge, MA 02142-1261

[phone] [e-mail] S.P. Kothari
MIT Sloan School of Management
50 Memorial Drive, E52-325
Cambridge, MA 02142-1261

[phone] [e-mail] First draft: September 2003
Current version: February 2004

We are grateful to George Benston, Kevin Rock, Jay Shanken, Antoinette Schoar,
Joe Weber, and seminar participants at Emory University and MIT for helpful comments.
We would like to thank William Fronhoefer for providing insights about institutional details. 2

Abstract
Previous research finds some evidence that analysts affiliated with equity underwriters issue more optimistic earnings growth forecasts and optimistic recommendations of client stock than unaffiliated analysts. Unfortunately, these studies are unable to discriminate between three competing hypotheses for the apparent optimism. Under the bribery hypothesis, underwriting clients, with the promise of underwriting fees, coax analysts to compromise their objectivity. The execution-related conflict of hypothesis postulates that the investment banks employing analysts who are more bullish

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