Decision Process of Financial Analysts - A case study on ABB

Abstract

Price targets have for a long time been subjects of discussions. Private investors as well as professional investors around the world base their investment decision on financial analysts‟ reports. Recent reports indicate that analysts are not pricing assets very well and differences between recommendations are significant. Three themes are addressed here, namely the impact of risk, psychological biases and information asymmetries on the estimations made. The empirical findings are mainly based on primary information from a case study on the international engineering company Asea Brown Boveri (ABB). Five deep-going interviews were made with financial analysts in order to examine estimations made by analysts. Our results indicate that analysts‟ use the same models but assess variables subjectively. Both aspects regarding information asymmetries and psychological biases appear to impact the decision process of analyst when setting their recommendations.