Why Do Financial Analysts Strive to Be Irrelevant? Career Concerns and Endogenous Coverage Termination

Boards can delegate some of the task of monitoring management to financial analysts, who reduce the asymmetry of information between a firm’s insiders and outside investors, which makes the various tools for reducing manager-shareholder conflict more effective. This chapter uses events at SPX, a mid-western manufacturing firm undergoing explosive growth, to explain the role that financial analysts play in monitoring management. It shows how career concerns can give financial analysts—who typically have little direct exposure to a firm’s share price—a strong incentive to monitor management. It also shows how analysts’ effectiveness as delegated monitors is limited by their own conflicts of interest and how the market’s response to analysts’ recommendations can have unwelcome effects on managers’ behavior.

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Performance, Herding, and Career Concerns of Individual Financial Analysts

SSRN Electronic Journal ◽

10.2139/ssrn.300889 ◽

2002 ◽

Cited By ~ 10

Author(s):

Xi Li

Keyword(s):

Financial Analysts ◽

Career Concerns

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Financial analysts' career concerns and the cost of private debt

Journal of Corporate Finance ◽

10.1016/j.jcorpfin.2020.101868 ◽

2020 ◽

pp. 101868

Author(s):

Bill Francis ◽

Iftekhar Hasan ◽

Liuling Liu ◽

Qiang Wu ◽

Yijiang Zhao

Keyword(s):

Financial Analysts ◽

Career Concerns ◽

Private Debt ◽

The Cost

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Early career concerns

PsycEXTRA Dataset ◽

10.1037/e517692009-033 ◽

2008 ◽

Author(s):

Jamie Chamberlin

Keyword(s):

Early Career ◽

Career Concerns

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Comprehensive Income: which potential effects on firms' performance evaluation and users' decision process?

FINANCIAL REPORTING ◽

10.3280/fr2015-002003 ◽

2016 ◽

pp. 55-94

Author(s):

Pier Luigi Marchini ◽

Carlotta D'Este

Keyword(s):

Performance Evaluation ◽

Decision Process ◽

Financial Analysts ◽

Listed Companies ◽

Financial Statement ◽

Comprehensive Income ◽

Other Comprehensive Income ◽

Gains And Losses ◽

The Impact

The reporting of comprehensive income is becoming increasingly important. After the introduction of Other Comprehensive Income (OCI) reporting, as required by the 2007 IAS 1-revised, the IASB is currently seeking inputs from investors on the usefulness of unrealized gains and losses and on the role of comprehensive income. This circumstance is of particular relevance in code law countries, as local pre-IFRS accounting models influence financial statement preparers and users. This study aims at investigating the role played by unrealized gains and losses reporting on users' decision process, by examining the impact of OCI on the Italian listed companies RoE ratio and by surveying a sample of financial analysts, also content analysing their formal reports. The results show that the reporting of comprehensive income does not affect the financial statement users' decision process, although it statistically affects Italian listed entities' performance.

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