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On the marketing effect of financial analysts: Evidence from investor bids in SEO auctions

Author

Listed:
  • Yang, Mingjing
  • Cheng, Xiaoke
  • Guan, Jenny Xinjiao
  • Gao, Shenghao
  • Liu, Jia

Abstract

This study investigates the marketing effect of financial analyst in seasoned equity offering (SEO) auctions and how this influences the price elasticity and sales of stocks. Analyzing detailed investor bids in China, we find that a greater marketing effort of financial analysts leads to increased investor demand, higher demand elasticities, and lower discounts in SEO auctions. These results are validated by utilizing estimated residual analyst reports, 2SLS estimation and alternative measures of analyst marketing effort. Further, we adopt a causal steps approach, confirming that a financial analyst increases investor demand by broadening the investor base and demand elasticity by reducing differences of opinion among investors. Our findings demonstrate that financial analysts play a marketing role in financial markets in addition to information gathering and monitoring. Our study provides novel evidence of an underlying mechanism driving the negative relationship between financial analysts and SEO discounts and offers practical insights into market regulation and monitoring.

Suggested Citation

  • Yang, Mingjing & Cheng, Xiaoke & Guan, Jenny Xinjiao & Gao, Shenghao & Liu, Jia, 2023. "On the marketing effect of financial analysts: Evidence from investor bids in SEO auctions," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 408-428.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:408-428
    DOI: 10.1016/j.iref.2023.06.030
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    References listed on IDEAS

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    1. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
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    More about this item

    Keywords

    Analyst coverage; Marketing effect; SEO discount; Demand elasticity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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