nonunderwriters, or by both. Excess returns from the first day of trading
are calculated contingent on the source of the recommendation. The IPOs
in the sample are categorized into five groups by source using information
available from First Call. Four of these are analyzed in figure 11.3. First,
there are 191 firms for which there are no recommendations available on
First Call within one year of the IPO date. Second, there are sixty-three
firms with recommendations made only by their lead underwriters. Third,
there are forty-one firms with recommendations made by both underwrit-
ers and nonunderwriters. Finally, there are forty-four firms with recommen-
dations made only by nonunderwriters. The fifth group, omitted from the
figure, is the fifty-two firms with only non-buy recommendations.
For each group shown, initial (first-day) returns average around +10.5
percent. Within six months after the IPO, however, a distinct difference
among the groups becomes evident. The IPOs recommended only by their
own underwriter had increased by 7.7 percentage points (to an 18.1 per-
cent excess return, including the first day), while the group recommended
only by nonunderwriters averaged an additional excess return of 18.6 per-
centage points (to 28.9 percent). The difference in performance between the
two groups is even larger one and two years later. The mean excess return
406 MICHAELY AND WOMACK
!"#$% ! ! !Figure 11.2. Cumulative mean size-adjusted event return for firms receiving new
buy recommendations within one year of their IPO, conditional upon the source of
recommendation. Source: Roni, Michaely, and Kent L. Womack. 1999. Conflict of
Interest and the Credibility of Underwriter Analyst Recommendations. The Review
of Financial StudiesSpecial 1999, 12 (4):653–86.