New Way to Get "Buy" Ratings From Wall Street


Let their firm take you public?  No, that’s so 1990s.  Now the way to get Wall Street analysts to call a spade a “compelling new dirt-extraction tool” is far more direct: just do personal favours for them. 

According to the FT, a new study to be released today shows that companies who help out analysts by making introductions, recommending them for jobs, and meeting with their investor clients, get sharply better ratings than companies that don’t.  (The last category, the so-called “non-deal roadshow” game–in which company executives agree to be trotted around town by one firm rather than another–has become a very important new service for Wall Street firms in the years since regulators tried to fix the last problem).

The study’s real finding?  Wall Street’s in the relationship business, and analysts are people, too.  Most smart executives figured that out a long time ago, but it’s always nice to have academics prove it. FT  Excerpts on next page:

From the FT piece:

The study found that by offering analysts favours, ranging from recommending them for a job to agreeing to speak to their clients, executives sharply reduced the chances of a downgrade in the aftermath of poor results or a controversial deal.

The unprecedented research, carried out on some 1,800 equity analysts and hundreds of executives, suggests that the radical regulatory reforms of the past few years have failed fully to eradicate conflicts of interests on Wall Street.

But, according to the study, conducted between 2001 and 2003 and to be presented to next month’s annual meeting of the US Academy of Management, nearly four out of six Wall Street analysts admitted receiving favours from company executives.

The frequency of favours increased in line with the shortfall between the company’s earnings and market expectations – a crucial determinant of analysts’ stock ratings.

The favours were instrumental in securing better treatment from analysts. Analysts who received two favours were 50 per cent less likely than colleagues to downgrade the company after poor results, the academics say.


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