Financial Reporting and Analysis Week 7 ‘Downgrade Warning
This is because the analyst has the obligation to portray the company that is paying him his salary in a positive limelight. The analyst has a lot of power in their hands. The meaning of this statement is that the analysis and the grading of the company actually guides the investors and helps them to decide whether to buy the stocks of the company. This is the reason that no company would want an analyst to portray them negatively because that would affect the behavior of their investors. Further a company who is paying an analyst to analyze their situation would never want the analyst gives them negative ratings. Thus, this is the pressure that the analysts face which reduces their independence. No, a “buy” recommendation on a stock after its price has fallen does not always mean that the independence of the analyst has been compromised. This is because the market may be under pricing the stock due to some other factors, which it did not understand. However, an expert analyst might be able to forecast the correct price of the stock, may see it increasing in future, and may recommend buying. Well the current position of the technology stocks after its crash in the past is not so stable. However, from the crash the technology stocks and the broader stock market have evolved a lot. Therefore, it cannot be conclusively stated that the analysts who are currently recommending investing in tech stocks and broader stock market lack independence.
Peter Houghton’s memo says that the analyst has the responsibility towards the company either to incorporate the changes requested by the company or to communicate to the company clearly, why the changes requested by the company cannot be incorporated. The memo does not clearly express the curb on analyst’s independence but it hints towards it because the responsibility either to