On the whole, the future CFOs fear most is one with even more regulation in the research arena. “My main concern is the overreaction and the overregulation to solve a problem that the marketplace can solve on its own,” says Goldman. “It will be self-correcting.” The NASD and the SEC seem unwilling to wait to see if that’s true.
Kris Frieswick is a staff writer at CFO.
Quid Pro Quos
The CFO Survey of Investment-Banking Relationships
This survey, our third in a series of four on corporate-finance practices, focuses on investment-banking and research-analyst relationships. A questionnaire was E-mailed to senior financial executives; 142 responded, and their answers are presented here. Seventy-five respondents work at publicly traded companies. The respondents represent a broad range of company sizes and industries. Most are from companies with at least $100 million in revenues, and the most-represented industries were financial services and technology.
Some highlights of the survey results: Most financial executives say they don’t expect an analyst’s recommendation in return for underwriting business, nor do they ask analysts to change recommendations. Also, a third of respondents are giving more guidance to analysts than they did a year ago. And 9 out of 10 think that analysts should be paid independently of their firm’s investment-banking revenues.
The first two surveys in this series, on financial reporting and auditor-client relationships, respectively, appeared in the August and September issues of CFO. The final survey will focus on corporate-governance issues.
1. Have you purchased investment banking services in the past two years?
- Yes: 47.6%
- No: 52.4%
2. Does your investment bank require you to buy other products or services in return for underwriting your securities?
- Yes: 12.2%
- No: 87.8%
3. Have you ever asked that the bank charge less than 7 percent of investment-banking proceeds in return for underwriting business?
- Yes: 25%
- No: 75%
4. If your answer to Question 3 was yes, did the bank agree to lower the underwriting fee?
- Yes: 90%
- No: 10%
5. How much did you pay?
- 5 - 6.99%: 66.7%
- 3 – 4.99%: 33.3%
- < 3%: 0%
6. Will you ask that your investment bank charge less than 7 percent for underwriting securities during the next 12 months?
- Yes: 43.6%
- No: 56.4%
7. Have you ever received an allocation of IPO stock in exchange for current or promised business with the underwriter’s bank?
- Yes: 2.1%
- No: 97.9%
8. How much earnings guidance are you giving analysts now compared with a year ago?
- More: 32.4%
- Less: 13.2%
- Same: 54.4%
9. Do you expect an investment bank’s analysts to recommend your stock in return for your underwriting business?
- Yes: 23.2%
- No: 76.8%
10. How often in the past five years have you asked that an underwriter’s analyst change his or her recommendation about your company’s stock?
- Never: 91.3%
- Once: 2.9%
- Twice: 2.9%
- More than twice: 2.9%
11. How many analysts currently cover your company?
- 0: 20%
- 1: 1.2%
- 24: 17.6%
- 57: 24.7%
- 8+: 36.5%
12. Has an analyst ever stated or implied that coverage of your company was contingent on your buying of services at the analyst’s bank?
- Yes: 8.7%
- No: 91.3%
13. Do you think analysts should be paid independently of their firm’s investment-banking revenues?
- Yes: 90.6%
- No: 9.4%
14. Do you think research operations should be legally separated from investment banks?
- Yes: 71.4%
- No: 28.6%