Featured Research

from universities, journals, and other organizations

Sell-side analysts lean towards high valuation companies for comparison

Date:
April 30, 2014
Source:
University of Toronto, Rotman School of Management
Summary:
Brokerage-based analysts have a tendency to benchmark companies they are researching against others in the same category whose stock is already expensively-priced, shows a new study.

Brokerage-based analysts have a tendency to benchmark companies they are researching against others in the same category whose stock is already expensively-priced, shows a study from the University of Toronto's Rotman School of Management.

The result is that the company being researched may look undervalued and a good buy compared to the high valuation company. The finding provides some support for the idea that sell-side analysts choose "peer" companies strategically, in order to make their recommendations seem more credible.

Nevertheless, most analysts use reasonable criteria for picking peer companies, says one of the study's researchers.

"We believe these analysts fulfil an important function in the market. That doesn't mean they're perfect," said Prof. Ole-Kristian Hope, Deloitte Professor of Accounting at the Rotman School. Prof. Hope co-wrote the study with Gus De Franco, an associate professor of accounting at the Rotman School and Stephannie Larocque, a Rotman PhD graduate who is now an assistant professor of accounting at the University of Notre Dame.

The study also found that analysts show an even greater tendency to choose high valuation peer firms when their own brokerages have investment-banking affiliations with the companies they are researching.

The effect is less evident among analysts with an established reputation for skilled analyses.

Previous research has shown that reports by sell-side analysts tend to be optimistic. But this is the first large-scale academic study to examine what goes into those reports and how sell-side analysts decide which peer companies to use for their comparisons.

The study is forthcoming in the Review of Accounting Studies.


Story Source:

The above story is based on materials provided by University of Toronto, Rotman School of Management. Note: Materials may be edited for content and length.


Cite This Page:

University of Toronto, Rotman School of Management. "Sell-side analysts lean towards high valuation companies for comparison." ScienceDaily. ScienceDaily, 30 April 2014. <www.sciencedaily.com/releases/2014/04/140430121120.htm>.
University of Toronto, Rotman School of Management. (2014, April 30). Sell-side analysts lean towards high valuation companies for comparison. ScienceDaily. Retrieved August 2, 2014 from www.sciencedaily.com/releases/2014/04/140430121120.htm
University of Toronto, Rotman School of Management. "Sell-side analysts lean towards high valuation companies for comparison." ScienceDaily. www.sciencedaily.com/releases/2014/04/140430121120.htm (accessed August 2, 2014).

Share This




More Science & Society News

Saturday, August 2, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Escaping Email: Inspired Vision or Pipe Dream?

Escaping Email: Inspired Vision or Pipe Dream?

AP (Aug. 1, 2014) Dustin Moskovitz is plotting an escape from email, using his communications expertise in an attempt to change the way people connect at work, where the incessant drumbeat of email has become an excruciating annoyance. (Aug. 1) Video provided by AP
Powered by NewsLook.com
Emory Prepares to Treat American Ebola Cases

Emory Prepares to Treat American Ebola Cases

AP (Aug. 1, 2014) Plans are underway to bring back the two American aid workers sick with Ebola from Africa. The U.S. State Department and the Centers for Disease Control and Prevention are helping to arrange the evacuation. (Aug. 1) Video provided by AP
Powered by NewsLook.com
Greenpeace Ship Arctic Sunrise Free to Leave Russia

Greenpeace Ship Arctic Sunrise Free to Leave Russia

AFP (Aug. 1, 2014) Greenpeace's ship Arctic Sunrise, held in custody by the Russian authorities since September last year, has departed the Russian city of Murmansk en route for its home port of Amsterdam. Duration: 01:04 Video provided by AFP
Powered by NewsLook.com
US Employers Add 209K Jobs, Rate 6.2 Pct

US Employers Add 209K Jobs, Rate 6.2 Pct

AP (Aug. 1, 2014) U.S. employers extended their hiring surge into July by adding a solid 209,000 jobs. It was the sixth straight month of job growth above 200,000, evidence that businesses are gradually shedding the caution that had marked the 5-year-old recovery. (Aug. 1) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins