FEATURE: ANALYSTS
“Fund managers, rating agencies,
investment banks and analysts have
a high degree of infl uence on what is
regarded as the appropriate form of
business management”
© VALERIE LOISELEUX
security analysts have a high degree of explained by ‘behavioural fi nance’. Empirical studies mostly fi nd
infl uence on what is regarded as an systematically upward-biased forecasts (over-optimism) and a
appropriate form of management practice tendency by analysts to herd. Herding leads to systematically
and can therefore be an important factor in wrong predictions coupled with relatively low levels of forecast
management fashion discourse. Th eir dispersion among the diff erent analysts. It is a well-established
infl uence is evident in management fashions, social phenomenon, and occurs especially in response to
such as the shareholder-value-approach and uncertainty as analysts fear that they might lose their job or
performance-based compensation. reputation when they issue wrong forecasts. Th is pressure leads
Th e capital market’s reaction to the them to exhibit conformity behaviour by orienting their
announcement of downsizing measures or forecasts to those of other analysts or following especially
the introduction of business process experienced or highly skilled analysts – so called ‘fashion leaders’.
re-engineering programmes also shows that Indeed, analysts are often blamed for behaving fashionably; e.g.
such fashions are infl uenced by the capital the new economy hype is often attributed to the over-optimistic
market. Other studies indicate that forecasts of herding analysts.
security analysts are also subject to
imitative behaviour and information CONCLUSION AND IMPLICATIONS
cascades. Similar imitation dynamics are Previous studies have analysed how technical (market) pressures
typical for management fashions. contribute to a de-institutionalisation of organisational form or to
Nevertheless, it remains unclear which role a fashion downswing.
these capital market actors play in the However, our fi ndings show that the opposite may also be true.
formation, distribution and decline of Analysts contribute to the institutionalization of new practices.
management fashions. We fi nd that they systematically overestimated the future
earnings of refocusing fi rms and therewith rather promoted the
THE ROLE OF SECURITY ANALYSTS refocusing wave. It is exactly the qualifi ed, unemotional
Security analysts are an important source (non-faddish) reasoning that gives capital market players the
of information to stock market participants authority to defi ne appropriate behaviour.
with regard to the valuation of fi rms. Th ey Further research has to show whether this is a general
are ‘surrogate investors’ as their forecasts, pattern.
when positive, increase demand for a One implication of our study is that analysts can mislead top
fi rm’s shares. But as fi nancial assets are managers into over-estimating the virtues of popular strategies,
social goods, valuation is diffi cult and particularly when a management fashion is at its zenith. It should
analysts, like all individuals, are prone to be noted that fund managers, rating agencies, investment banks
errors, misinterpretation, social infl uence and analysts have an increasing infl uence on corporate strategy
and personal bias. and structure, and managers are subject to growing pressure for
Advances in fi nance theory suggest legitimisation from shareholders and their representatives. Th e aim
that the limited sense of effi ciency can be is to impede ‘deviant’ managerial actions.
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