Wednesday, March 04, 2015

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Study Finds Financial Analysts Stifle Creativity

altATHENS - Any number of things can affect a company’s ability to innovate: talent, commitment, luck and funding all play big roles.

But new research from the University of Georgia shows that one factor outside a company has dramatic effects on its creativity: financial analysts. In a paper recently published in The Journal of Financial Economics, researchers at UGA’s Terry College of Business show, how financial analysts can hamper the process. The findings show that the more financial analysts are monitoring a firm, the fewer patents it produces—and the patents it does produce tend to elicit fewer citations. In other words, investing in innovation is a big commitment for firms. It requires lots of time and money, and results aren’t guaranteed. When firms are under the magnifying glasses of financial analysts, managers can find themselves under pressure to put more resources toward routine tasks that offer quick and certain returns.