Strategic IPO underpricing, information momentum, and lockup ...

analyst recommendations relative to no underpricing. These results are consistent with those in
Rajan and Servaes (1997), who find that the number of analysts providing earnings estimates is
positively associated with IPO underpricing.
The third implication that we test is whether stock returns from the IPO to the expiration of
the lockup period are increasing in information momentum. We measure stock returns as the buyand-hold
return from the IPO’s first-day closing price through 180 days following the IPO (RET).
We estimate the following regression:
RET = α + β 1 NAS + β 2 log(MktCap) + β 3 LUR + β 4 Internet + β 5 VC + β 6 NoResCov + β 7 UP +
β 8 UP 2 + β 9 Co-Mgrs + β 10 Mentions + β 11 NonLeadRecs + β 12 LeadRecs + µ t + e. (17)
As additional control variables, we include the number of co-managers at the IPO (Co-Mgrs), the
return on the Nasdaq Composite Index (NAS), and an indicator variable set to one if the firm has
no research coverage on First Call (NoResCov).
Table 6 shows that research coverage defined as the number of mentions (Mentions) of the
stock by brokers during the first six months from First Call is positive but insignificant in
explaining six-month returns. The number of recommendations made by non-lead analysts
(NonLeadRecs) is positive and significant in explaining six-month returns. The number of
recommendations made by lead analysts (LeadRecs) is negative and significant in explaining sixmonth
returns. The negative coefficient on the recommendations by lead analysts again suggests
that lead analysts are not a mechanism through which information momentum operates,
consistent with the results from the third column of Table 5. Instead, Michaely and Womack
(1999) argue that the recommendations of lead underwriter-affiliated analysts are biased and thus
less informative than those by non-lead analysts. The pattern of coefficients in Table 6 is
consistent with this view.
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