We examine the equity ownership of brokerage firms in IPO issuers due to earlier venture investments. We find that it benefits issuers by inducing firms to provide research coverage by Institutional Investor star analysts, especially higher ranked stars. It also benefits public investors because the affiliated analysts issue substantially fewer strong buy recommendations and more negative recommendations, and the event period abnormal returns of their recommendations are greater. The benefits to investors are greater for issuers with greater information asymmetry. Further, this ownership discourages the affiliated analysts to provide booster shots to stock prices when venture funds are likely to distribute shares to fund investors. Our results yield implications for the recent rules of the NASD and NYSE on the equity ownership of firms and analysts.
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