IPO issuers boost stock prices by purchasing high-quality analyst coverage.
The study found that companies that offer shares to the public often pay for analyst coverage to help boost the value of their initial public offerings (IPOs). When companies pay for high-quality analyst coverage, their IPOs tend to have higher underpricing. This means that the stock price increases more than expected on the first day of trading. Companies are more likely to switch underwriters for future stock offerings if they don't receive the analyst coverage they expected.