Another Study Questions Sell-Side Research Credibility


New York, NY – According to a new academic paper, slated to be released next month, many Wall Street analysts have developed close relationships with CEOs of companies they cover — a development which could call into question the objectivity of the research they produce.

Based on a study, co-authored by James Westphal, a business professor at the University of Michigan and Michael Clement of the University of Texas, Austin, nearly 63% of the analysts surveyed said they had received some type of favors from the executives of companies they covered.

These favors included both professional and personal perks.  On the professional side, some CEOs agreed to meet with the analysts’ clients.  In other instances the executives put analysts in touch with buyers and suppliers to round out their research.  Some of the personal favors reported include career advice or help getting admission into private clubs.

The study indicated that these favors tended to bias the research produced by these analysts.  For example, some analysts who received favors from company executives tended to maintain their positive recommendations on a company even after negative information about the firm was released.

The study also found that another way that corporate executives tried to pressure the analysts who covered them was by cutting off their access to them if they issued negative reports about their companies.  Limiting access to management was often seen as a very potent way of keeping analysts “in line”.

The study, was based on detailed interviews with numerous CEOs and sell-side analysts during the four year period from 2000 to 2004.

An article published recently by Reuters provides more details about this new academic study.  Click the link to read more on this topic.


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