Analyst information about peer firms during the IPO quiet period

Abstract

The SEC limits sell-side analysts’ research activities on IPO firms both before and immediately after going public (the IPO quiet period). However, during the IPO quiet period, analysts provide regular coverage of IPO peer firms, which is potentially relevant to investors seeking to glean information about the IPO firm itself. We examine whether, despite the restrictions on analyst research of IPO firms during the quiet period, investors uncover information about the IPO firm indirectly through analyst research of peer firms. We find that, on the IPO date, institutional investors trade on the information in analysts’ recommendation revisions of peer firms that were issued earlier in the quiet period. Institutional investors also trade in the short window around analyst revisions of peer firms that are issued later in the quiet period (after the IPO date) but before analysts initiate coverage of the IPO firm. Retail investors, however, are inattentive to the information available in analyst research of peer firms. Importantly, our findings vary predictably with attributes of the issuing analyst, which helps rule out firm- and industry-level alternative explanations. Lastly, we find that recommendation revisions analysts issue for peer firms predict future IPO-firm performance, suggesting that analyst research of peer firms during the quiet period conveys meaningful information about the IPO firm that results in an information advantage for institutional investors.