The role of financial analysts in the strategy formation process of business firms

Abstract

Increasingly, financial analysts are influencing the strategy formation process of corporations, but so far little attention has been paid to the complex processes of interaction and the corresponding strategic outcomes. This article discusses these influences through different theoretical lenses (strategic management, finance and accounting theory and economic sociology, institutional and systems theory). Based on case study evidence from three companies, we describe how the interactions between financial analysts and business firms take place, and formulate several propositions on the relationship between financial analysts and business firms as well as on its influence on the strategic outcome of business firms. The results suggest that the influence of financial analysts is indeed significant but depends on a number of contextual factors, such as the financial situation of the company or the need for capital. Practicing managers can learn how to handle a turbulent environment such as the financial analyst community and how they can change their planning processes to absorb as much information as possible.