Hot Tip: Don't Believe the (Analysts') Hype
BY Mike Hofman
If a big, newly public competitor of yours is getting good press, don't be alarmed about some new threat. First, do a little background check before you buy an analyst's hype about a competitor. Analysts at investment banks often take a shine to companies that they've taken public. That's the finding of a new study by Cornell University's Johnson Graduate School of Management. The authors -- associate professor Roni Michaely and Ph.D. candidate Kent Womack -- tracked more than 200 "analysts' recommendations of companies that completed IPOs in 1990? 1991." According to their research, companies plugged by an analyst whose firm did not underwrite the initial public offering performed 50% better than businesses recommended by an analyst at the bank that orchestrated the offering.