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| Friday, November 20, 2009 |
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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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July 27, 2007 12:45 PM ET
Chief financial officers and other top executives have discovered that a little favor goes a long way. A forthcoming study has discovered that by giving favors to Wall Street analysts, U.S. execs can often get better research ratings for their firms. The study found that nearly two-thirds of equity analysts, or 63%, received favors from chief executives, chief financial officers or other senior level execs. Favors include putting an analyst in touch with a top manager of another firm, recommending the analyst for another job and helping an analyst gain access to a private club or non-professional organization. It’s news that will surely be disturbing to investors looking for objective advice, especially since these favors seem to be highly influential. For example, the study found that executives giving two favors to an analyst after a poor earnings release reduces the likelihood that analyst will issue a downgrade by half. Two favors after a diversifying acquisition, a move most analysts dislike, reduces the chance of a downgrade by 65%. The upcoming study, which was co-authored by professors James Westphal of the University of Michigan and Michael Clement of the University of Texas, Austin, also found that executives influence ratings by withholding favors from analysts. According to the study, analysts that were aware of an executive who retaliated for being downgraded—by not responding to phone calls or refusing to answer questions—were less than half as likely as their peers to downgrade that exec’s firm after an earnings report came in 50% below forecasts. “The bottom line is that favor-rendering to analysts is evidently widespread and it seems to be compromising the value of guidance these experts provide to investors,” said Mr. Clement. “The study certainly suggests that it deserves to be taken seriously by the securities industry or by government.” Government has tried to deal with brokerage firms’ conflicts of interest. In 2002, a $1.4 billion settlement against the nation’s top investment banks and brokers brought by then-New York Attorney General Eliot Spitzer and the Securities and Exchange Commission was aimed at forcing analysts to make their research more independent. And seven years ago, the SEC introduced Regulation FD, which requires that any information provided to an analyst be provided to everyone. The new study was based on a survey of several thousand analysts and hundreds of managers between 2000 and 2004. The professors will present their findings at the Academy of Management in Philadelphia Aug. 6.
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