A recent joint study prepared by two professors at the University of Michigan and the University of Texas shows that nearly two-thirds of surveyed investment firm analysts received favors from company executives in exchange for preferential treatment when rating stocks.

UT accounting associate professor Michael Clement and UM management professor James Westphal sent 4,500 questionnaires to financial analysts between 2001 and 2003 and sent follow up surveys to hundreds of executives at the large and mid-size public companies covered by the analysts.

According to a report in Financial Week, the study found that nearly two-thirds of equity analysts, or 63 percent, received favors from chief executives, chief financial officers, or other senior level execs. Favors include putting an analyst in touch with a top manager of another firm, recommending the analyst for another job and helping an analyst gain access to a private club or non-professional organization.

"The main surprise was not the number of favors, but the effect they had on analyst recommendations," Westphal commented.

The Washington Post reports that the study comes four years after a crackdown by the Securities and Exchange Commission, then-New York Attorney General Eliot Spitzer, and other state regulators exposed Wall Street conflicts that skewed analysts' research, and forced the big investment firms to alter their research practices and pay a total $1.4 billion in a landmark settlement. The regulators found that analysts at the powerhouse investment firms, including Citigroup, Merrill Lynch, and Credit Suisse misled investors with stock recommendations designed to win their firms investment-banking business and lucrative fees.

The 51-page report examines the possibility of a correlation between professional and personal favors and the likelihood of a downgrade in stock ratings for poorly performing companies. Results of the survey show that 28 percent of all favors involved executives connecting analysts with hard-to-reach bosses at other companies.

Career and personal advice accounted for 30 percent of all favors. Other favors included job recommendations and assistance in gaining membership to private clubs and nonprofessional organizations.