Analysts press for underinvestment

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I have noted before that stock analysts need know little about how strategy affects firm performance, so an academic study on the impact of stock analysts on firms’ investment behaviour is intriguing. The unpublished working paper by Benner and Ranganathan at Wharton finds that negative pressures from analysts to improve cash flow and stock price trigger reductions in strategic investments during periods of technological change. Two examples:

  • One analyst continually pressured Kodak to cut costs and investment in digital technology: “…we suspect ...
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Good strategy from big listed firms

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I have been tough on the poor strategy seen over both of the last two boom-bust cycles, so good to see in Sensible Giants from the Economist that the largest listed firms have disproportionately little debt compared with both smaller listed peers and private firms.

It seems that these large firms are both:

  • more able to fight off the stupid urgings of naive analysts who pushed less powerful companies to take on more debt to pursue unsustainable growth, with the implicit ...
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The banking crisis – again

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I’ve gone on about this before, but it’s gone way, way worse since I last brought it up, so let’s not forget that this whole mess started with gross strategic incompetence on the part of a few dozen CEOs of ordinary banks over-selling high-cost mortgages to more-and-more people who, more-and-more, couldn’t afford it – and egged on by equally incompetent analysts lauding those same CEOs for their foolishness – and then compounded by further incompetence when those toxic loans were ...

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