Role of financial analysts in banking Essay Example | Topics and Well Written Essays - 4000 words

Role of financial analysts in banking - Essay Example Many recent financial reporting scandals (e.g. the Enron Scandal) have been attributed to poor corporate governance oversight, understatement of the role of financial analyst and poor financial reporting process (Weintrop, Li & Byard 2006). As a response to these financial reporting scandals, regulators and major stock exchanges have implemented new rules designed to improve the quality of corporate governance, strengthen the role of financial analyst (e.g., by requiring audit committees to be fully independent, role of financial analyst to include both financial and non financial information). Implicit in these regulatory changes is a belief that such measures will eventually improve the quality of information available to the users of financial reports (e.g., financial analysts) (Baker 1988, Covrig & Low 2005, Weintrop, Li & Byard). Baker (1988) studies the important role of sell-side financial analysts on capital markets and by means of his analysis earnings forecasts and recommendations, financial analysts have a significant influence on the investment community (Lybaert & ORens 2007). Lybaert & ORens (2007) study how the use of non-financial information influences financial analyst forecast. ... such measures will eventually improve the quality of information available to the users of financial reports (e.g., financial analysts) (Baker 1988, Covrig & Low 2005, Weintrop, Li & Byard). These researchers however, have focused their studies on the importance of financial analyst to the economy. Baker (1988) studies the important role of sell-side financial analysts on capital markets and by means of his analysis earnings forecasts and recommendations, financial analysts have a significant influence on the investment community (Lybaert & ORens 2007). Lybaert & ORens (2007) study how the use of non-financial information influences financial analyst forecast. The researchers came to the conclusion that financial analyst who use more forward-looking information and more internal-structure information offer more accurate forecasts for investors and the organisation in which they work for. The same idea was supported by Vanstraelen, Zarzeski, and Robb (2003) when they find out that disclosure of non-financial forward-looking information was directly related to the accuracy of the analysts' earnings forecasts. Weintrop, Li & Byard (2006) examine the association between corporate governance and the quality of information available to financial analyst. They test this assertion by studying the association between corporate governance and the quality of financial analysts' information 1.2Problem Statement and Research questions Much prior research on financial analyst has tended to describe and focus on how investors react to financial analyst information in general (e.g. Baker 1988, Paperman, and O'Hara & Easley 1998). Today, attention is gradually being shifted to the importance of their role in the economy, their use of financial and non-financial measures