Study Finds People Like You More When You Give Them Free Stuff, Wall Street Analysts No Exception

Posted by Bess Levin, Jul 27, 2007, 2:00pm

From a report that’s poised to win a cornucopia of awards for its breakthroughs in the field of human behavior, scientists—yes, scientists—have determined that “US executives have been able to secure more favorable research ratings for their companies from investment banks by bestowing professional favors on Wall Street analysts.” Time out. Did they just say what we think they just said? Let’s watch the tape again: “US executives have been able to secure more favorable research ratings for their companies from investment banks by bestowing professional favors on Wall Street analysts.” They did, indeed! Hang on. We need a second.

Okay, we’re going to try and muscle through this. “Unprecedented research” performed on 1,800 equity analysts found that an executive could greatly increase the odds of his company getting a happy face emoticon instead of the one with a foot where the mouth should be, by offering analysts favors ranging from recommending them for a job to agreeing to speak with their clients to blow job y backrub combos. Jesusmaryandjoseph! Keithrichardhahn! Johnfranciscarneythethird!

We’re not finished— analyst receiving two favors were 50% less likely than non-favor receiving colleagues to downgrade a company. We’re not finished—“favor-rending” to analysts in order to reduce the chances of a downgrade in the wake of poor results or a controversial deal is “widespread.” Meaning it happens a lot? In what kind of sick, fucked up, alternate universe was this study conducted?

Are you ready for this biggest kicker of them all? Kurt Schacht, director of the Center for Financial Market Integrity at the CFA Institute, which represents more than 80,000 analysts and fund managers, said that “Activities such as these are in clear breach of our code of conducts and standards…and are unethical.” Someone hand us a Molotov cocktail.

Executives find favours bring better ratings [FT]

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Posted in: Analysts, Companies, Crescendo of Awesomeness, Heard On The Street, I really did invent the question mark

Comments

Posted by , Jul 27, 2007 2:08PM

Study Finds People Like You More When You ...??? Them Free Stuff, Wall Street Analysts No Exception

when you what? what?? feed them? steal them?

Posted by , Jul 27, 2007 2:13PM

effing CFAs , so smug with their Code of Ethics and Standards

well ive got news for you Shnacht most of your CFAs i know mock your precious Code behind your smug back when they are drunk, you smug jerk.

Posted by , Jul 27, 2007 2:31PM

KellyClarkson!

Posted by Zbignew, Jul 27, 2007 2:40PM

Shocking. I am absolutely breathless at this revelation.

Posted by Random Banker, Jul 27, 2007 2:43PM

Contrarian thinking strikes again....

Any management team without the good common sense to try wine and dine research analysts probably misses other key principal in recruiting and retaining talented employees at their firm maybe they should be down graded if they aren't wise enough to spend a few thousands dollars to lower the company's cost of capital by millions... So it turns out the analysts are completely justified.

Posted by pete rose, Jul 27, 2007 2:48PM

PETE ROSE!!!!!!

Posted by jt, Jul 27, 2007 3:13PM

if the cfa institute and these other ethics zealots keep telling everyone about all the quid pro quo'ing going on in the research community with company execs that is TOTALLY going to blow the only allure of switching over to equtiy research to avoid a burnout, damn!

Posted by Series7.5, Jul 27, 2007 3:39PM

LOL

i kinda miss the days of sitting around in my cube writing mindless maintenance research

Posted by anon, Jul 27, 2007 4:21PM

These analysts are completely useless. What is the proper business model, with proper incentives, for making money through stock recommendations? Could it be ... to trade on your ideas? Or is it ... give away the research and methodologies for free?

Posted by jt, Jul 27, 2007 4:47PM

fo reals ibank equity research is pretty retarded. Hence why all the good ones are on the buy side

Posted by nm, Jul 28, 2007 10:52AM

All I remember from the ethics portion is:
"it is okay to get drunk as long as you don't get arrested".

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