Benefits Of Compensation Packages At Analyst's Compensation

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The last but certainly not least significant way for a conflict of interest to arise with an analyst and his or her valuation is through that analyst’s compensation. The brokerage firms employing the analysts can take advantage of compensation packages to make analysts feel as if they are being shoved into a corner with little option but to only come up with buy-recommendations and optimistic research reports. Bonuses can be tied to the revenues brought in the the analyst’s employer, so decreasing the profitability of the brokerage firm would seem like an implausible option. It can be even more daunting to go against the firm when the analyst’s own compensation is directly proportional to the well-being of the company’s investment banking…show more content…
This inevitably makes it so that analysts will not only go out of their way to value companies they are already think are undervalued, but to also be less likely to share their results when their findings turn out to prove, or at least be evidence, that the company is overvalued. There are also other external factors that can have an effect. There are institutional firms that do “strongly believe that behavioural biases cause investors to over- or underreact to new information as sentiment and emotion cloud their judgment” (Roodt, 1). They acknowledge this with the hope that by recognizing its existence they are already doing at least a small part to combat biases in valuations for the analysts. In the news currently, partly in thanks to the blossoming political campaigns of many a presidential candidate trying to make a name for themselves going into the race for the Oval Office which is up for election in 2016, there is a lot of talk about the recession of 2008. This paper does not go into the specifics of that economic travesty, but it is significant to note that there is general consensus that Wall Street speculation played a role. How much or how little a role it played depends on the person (and political party) that you ask. So, operating under the widely accepted assumption that financial speculation played a role, it makes sense to state that valuation (and therefore the biases associated with it) must have at least played a role in the global economic
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