San Jose Mercury News – New study shows analysts getting favors

This is why stronger oversight by the SEC is warranted. Probably a division that does unbiased analysis, where executives have to participate with the analyst. Just like quarterly filings, then do a Q&A with an independent, government analyst. Draconian? No, I don’t think so.

San Jose Mercury News – New study shows analysts getting favors WASHINGTON—Conflicts of interest may still be rampant on Wall Street, with a new study showing that nearly two-thirds of investment-firm analysts received favors from executives of companies they cover and suggesting that the companies get favorable ratings in return. The academic study published Friday outlines a culture of blatant back-scratching on Wall Street as company executives bestow professional and personal favors on analysts—putting them in touch with top executives of other companies, recommending them for a job—and their companies receive positive ratings and evade stock downgrades. At the same time, executives punish analysts for negative reports by refusing to answer their phone calls or their questions. For their study, management professor James Westphal of the University of Michigan and accounting professor Michael Clement at the University of Texas sent 4,500 questionnaires to financial analysts between 2001 and 2003 and follow-up surveys to hundreds of executives at the large and mid-size public companies covered by the analysts. The 51-page study, to be presented at the Academy of Management’s annual meeting next month, found that the more a company’s earnings slipped below analysts’ consensus forecasts, the more favors the company’s executives showered on the analysts covering it—especially at big investment firms.