Wall Street's Credibility Problem: Misaligned Incentives and Dubious Fixes?

Boni, Leslie; Womack, Kent L.

doi:10.1353/pfs.2002.0005

Cited by 60 publications

(37 citation statements)

References 14 publications

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“…These findings are inconsistent with the claim that the quality of research issued by analysts employed by investment banks is inferior. Rather, their results suggest that the greater accuracy of analysts employed by investment banks is due to those firms hiring more experienced and higher quality analysts (perhaps in part due to their resource advantage, see Boni and Womack, 2002) and these analysts having greater access to private information from management.…”

Section: Do Analysts Distort Their Reports?mentioning

confidence: 98%

The financial reporting environment: Review of the recent literature

Beyer

Cohen

Lys

et al. 2010

Journal of Accounting and Economics

1,962

328

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Section: Do Analysts Distort Their Reports?mentioning

confidence: 98%

The financial reporting environment: Review of the recent literature

Beyer

Cohen

Lys

et al. 2010

Journal of Accounting and Economics

1,962

328

View full text Add to dashboard Cite

“…De Franco et al, 2007). Finally, analysts are annually ranked in several prominent financial publications based on input from institutional investors (Boni and Womack, 2002;Institutional Investor Magazine, 2011) and their compensation and career opportunities are tied to these rankings.…”

Section: Securities Analysts' Recommendations and Investor Beliefsmentioning

confidence: 99%

Divergent Reactions to Convergent Strategies: Investor Beliefs and Analyst Reactions During Technological Change

Benner

Ranganathan

2013

Organization Science

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An important outcome of technological change is industry "convergence," as a new technology spurs competition between established firms from different industries. We study the reactions of securities analysts, as important sources of institutional pressures for firms, to the similar product/market strategies undertaken by firms from different prior industries responding to industry convergence. Our empirical setting is the convergence between the wireline telecommunications and cable television industries in the period following the advent of voice over Internet protocol technology. Controlling for firm financial performance and capabilities, we find that analysts were consistently more positive toward the cable firms than toward the wireline telecom firms. Our findings further show that this divergence in reactions arises from differences in existing investor expectations and preferences concerning how firms create value; stocks owned by investors with a greater preference for growth receive more positive reactions than those owned by investors with a greater preference for margins. However, this divergence in reactions shrinks over time as convergence unfolds and as investors shift their shareholdings in response to misalignment between their preferences and firms' strategic changes. Reactions from analysts-reflecting inertial expectations of investors-may persist for a time despite changes to firms' strategies, thus creating challenges for some firms in responding to technological change and industry convergence while legitimating and enabling similar responses from their competitors. DIVERGENT REACTIONS TO CONVERGENT STRATEGIES: Investor beliefs and analyst reactions during technological change ABSTRACTAn important outcome of technological change is industry ‗convergence,' as a new technology spurs competition between established firms from different industries. We study the reactions of securities analysts, as important sources of institutional pressures for firms, to the similar product/market strategies undertaken by firms from different prior industries responding to industry convergence. Our empirical setting is the convergence between the wireline telecommunications and cable television industries in the period following the advent of Voice over Internet Protocol (VoIP) technology. Controlling for firm financial performance and capabilities, we find that analysts were consistently more positive towards the cable firms than towards the wireline telecom firms. Our findings further show that this divergence in reactions arises from different pre-convergence investor expectations and preferences concerning how firms create value; stocks owned by investors with a greater preference for growth receive more positive reactions than those owned by investors with a greater preference for margins. However, this divergence in reactions shrinks over time as convergence unfolds and as investors shift their shareholdings in response to misalignment between their preferences and firms' updated strategies. The...

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“…But the unit was instructed to stop sharing its recommendations with the press. This episode points to the pressures to downgrade within the financial industry, related to the relation between brokers' sales-side research and other businesses units of investment banks (Boni and Womack, 2002). Several other investment banks, including Merrill Lynch, ABN-Amro and Morgan Stanley, downgraded Brazil at about the same time as Santander (see Table 1).…”

Section: Analysts Analyzed: Wall Street and The 2002 Brazilian Presidmentioning

confidence: 99%

Financial Markets and Politics: The Confidence Game in Latin American Emerging Economies

Martı́nez¹,

Santisó²

2003

International Political Science Review

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ABSTRACT. This article focuses on the interactions between politics and financial markets in emerging economies. More precisely, it examines how Wall Street reacts to major Latin American political events. The case study focuses on the 2002 Brazilian presidential elections. The first section of the article provides a critical review of the available literature. The second section presents an empirical study of Wall Street analysts' perceptions of the 2002 presidential elections in Brazil, based on reports produced by leading Wall Street investment firms. The final section uses polling and financial data from previous Brazilian elections to place the events of 2002 in comparative historical perspective.

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Wall Street's Credibility Problem: Misaligned Incentives and Dubious Fixes?

Cited by 60 publications

References 14 publications

The financial reporting environment: Review of the recent literature

The financial reporting environment: Review of the recent literature

Divergent Reactions to Convergent Strategies: Investor Beliefs and Analyst Reactions During Technological Change

Financial Markets and Politics: The Confidence Game in Latin American Emerging Economies

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