Pump and Dump : An Empirical Analysis of the Relation between Corporate Financing Activities and Sell-Side Analyst Research

We analyze the relation between corporate financing activities and sell-side analysts' investment research. We document pervasive evidence of overoptimism in sell-side analysts' earnings forecasts, stock recommendations and target prices that is systematically related to corporate financing activities. Overoptimism is greatest for firms issuing equity and debt and least for firms repurchasing equity and debt. Our evidence is consistent with allegations that sell-side analysts routinely manipulate their investment advice in response to investment banking pressures in order to temporarily inflate stock prices around securities issuances