Approach Two: Product Perspective

Abstract

This chapter scrutinizes financial analysts’ text products, drawing on an overall data corpus that consists of 2100 financial analysts’ texts in English, German, and Japanese.

Financial analysts’ text products are meant to provide investors with information that helps them decide on the allocation of their funds . Whereas the main investment recommendation, usually expressed with the words buy, hold, or sell, is easy to understand, the reasoning behind this recommendation often remains unclear. In other words, investors, and especially retail investors, do not understand the underlying risks of their investment decisions. Ultimately, this impacts society at large: losses on retail investors’ funds can lead to insolvency and drive people into huge debts; losses on pension funds, for example, reduce the pension benefits for wide parts of the society. But not only investors struggle with the reasoning in investment recommendations: it regularly happens that even financial analysts’ peers do not understand the reasoning in their colleagues’ texts.

In order to analyse this problem in-depth, I collected financial analysts’ text products. The result is a corpus of roughly 2100 texts in English, German, and Japanese, published between 1982 and 2020. Text genres include short reports about companies, company updates, consensus estimates, company comments, periodical publications, calculation models, press releases, sector analyses, and macro analyses on financial markets. For this study, I have analysed the sub-corpora of the genre company updates (Sect. 5.2.2). Since these text products contain a detailed reasoning of the financial analyst, are published frequently and aimed at a broad audience, the results of the analysis offer a good indication of their communicative potential. The empirically grounded knowledge of text’s communicative potential is a key precondition for research-based improvement.

In the following, I formulate the research question from a product perspective (Sect. 5.1), describe the corpus data set (Sect. 5.2) and the method applied (Sect. 5.3), discuss the results (Sect. 5.4), and draw an interim conclusion from a product perspective.

1 Research Question

This chapter scrutinizes financial analysts’ text products, focusing on company updates. From this product perspective, the research question (Chapter 1) reads as: What are the key characteristics of financial analysts’ investment recommendations that influence their communicative potential in the given context?

2 Data

The data in this part consists of roughly 2100 financial analysts’ text products, ranging from short company updates of less than a page to elaborated sector studies of more than a hundred pages. This variety is mirrored in the structure of the corpus (Sect. 5.2.1), which is divided into several sub-corpora. For this study, four of the sub-corpora were analysed (Sect. 5.2.2).

2.1 Corpus

The text products from financial analysts are compiled in a data corpus. In the following, I will explain the context in which the data was collected (Sect.  5.2.1.1), the gathering of the data (Sect. 5.2.1.2), the variety of the data (Sect. 5.2.1.3), as well as the structure and the nomenclature of the corpus (Sect. 5.2.1.4).

2.1.1 Context of Data Collection

Financial analysts’ text products impact all stakeholders of the financial community and the financial markets. The availability of these texts has changed over time. Whereas three decades ago, studies for retail investors were often freely available in the bank counter area, nowadays, the majority of financial analysts’ reports, studies, and recommendations is only accessible to investors who are either customers of a bank or pay for these text products. The “Markets in Financial Instruments Directive II” (MiFID II), in force as from the beginning of 2018, has further regulated the access: financial institutions must raise fees for all financial analysts’ text products. These fees can be included in service packages for investors (indirect charging), or fees can be raised if stakeholders are not clients of the financial institution (direct charging).

2.1.2 Gathering the Data

From 1987 to date I have collected, and I still collect,¹ financial analysts’ text products for the corpus. In the beginning, the data purely consisted of print material, but with increasing digitalisation, the documents became more and more available in electronic form. The data stems from different sources: first, I collected texts products that are decontrolled by the legal entities of the bank; second, I received financial analysts’ recommendation as a retail investor; and third, some material was passed on to me by financial analysts or people who know that I am interested in these text products. As a consequence, the data in the corpus currently contains roughly 2100 financial analysts’ text products.

The languages of the text products are English, German, and Japanese. Text genres include short reports about companies, company updates, sector analyses, macro analyses on financial markets, consensus estimates, periodical publications, calculation models, and press releases. The purposive sampling, based on opportunities in my role as ethnographic researcher, results in a composition of the corpus which does not allow for representative studies—but for explorative studies in a large variety of genres and foci, such as responsibility markers in Japanese financial analysts’ texts. This book, focuses on exploring the product context, product function, and product structure of company updates (see above, Sect. 5.1).

2.1.3 Processing the Data

For the analysis, the selected sub-corpora (Sect. 5.2.2) were coded and annotated with the programme Hyperresearch, a standard programme for qualitative data analysis. The categories for the coding were chosen in line with the text features described in Sect. 5.3: text features regarding comprehensibility, text features regarding comprehensiveness, text features regarding standpoint, and text features regarding persuasion. For reasons of data protection regulations in the financial industry, the data is not disclosed in detail.

2.1.4 Structure of Data Set

The data in the corpus is structured by text genre. The nomenclature is as follows:

Consensus estimates	consen_E consensus estimates in English
	consen_G consensus estimates German
	consen_J consensus estimates Japanese
Company comment	comm_E company comment English
	comm_G company comment German
	comm_J company comment Japanese
Company updates	updat_E company updates English updat_G company updates German
	updat_J company updates Japanese
Sector analyses	sector_ch_E sector analyses Switzerland English
	sector_ch_G sector analyses Switzerland German
	sector_euro_E sector analyses Europe English
	sector_euro_G sector analyses Europe German
	sector_int_E sector analyses international English
	sector_int_G sector analyses international German
	sector_int_J sector analyses international Japanese
Macro analyses financial markets	macro_ch_E macro analyses financial markets Switzerland English
	macro_ch_G macro analyses financial markets Switzerland German
	macro_euro_E macro analyses financial markets Europe English
	macro_euro_G macro analyses financial markets Europe German
	macro_int_E macro analyses financial markets international English
	macro_int_G macro analyses financial markets international German
	macro_int_J macro analyses financial markets international Japanese
Periodical publications	perio_ch_E periodical publications Switzerland English
	perio_ch_G periodical publications Switzerland German
	perio_euro_E periodical publications Europe English
	perio_euro_G periodical publications Europe German
	perio_int_E periodical publications international English
	perio_int_G periodical publications international German
	perio_int_J periodical publications international Japanese
Calculation models	calcu_E calculation models English
	calcu_G calculation models German
	calcu_J calculation models Japanese
Press releases	press_E press releases English
	press_G press releases German
	press_J press releases Japanese

2.2 Sub-corpora

For this study, four of the above-mentioned (Sect. 5.2.1.4) sub-corpora were analysed. These are: company updates in English (Sect. 5.2.2.1), in German (Sect. 5.2.2.2), in Japanese (Sect. 5.2.2.3), and an overview of genres (Sect. 5.2.2.4). The genre company update was selected for the analysis because of its frequency and scope: first, financial analysts have to write and publish these text products frequently and regularly; second, the genre contains an explicit reasoning of the financial analyst; and third, company updates are aimed at a broad audience.

2.2.1 Company Updates in English

The company updates in English are labelled using the following nomenclature: genre_language_financial institution_covered company_date. This results in file names such as, “updat_E_PNC_boeing_1992-08-03”, which reads: data category company update (updat), language English (E), PNC as the financial institution which analysed the company, Boeing as the analysed company (boeing), and the publication date of the report is 1992 August 3.

2.2.2 Company Updates in German

The company updates in German are labelled using the following nomenclature: genre_language_financial institution_covered company_date. This results in file names such as, “updat_G_ZKB_ABB_2012-11-05”, which reads: data category company update (updat), language German (G), Zürcher Kantonalbank as the financial institution which analysed the company (ZKB), ABB as the analysed company (ABB), and the publication date of the report is 2012 November 5.

2.2.3 Company Updates in Japanese

The company updates in Japanese are labelled using the following nomenclature: genre_language_financial institution_covered company_date. This results in file names such as, “updat_J_nomura_mazuda_2016-06-24”, which reads: data category company update (updat), language Japanese (J), Nomura as the financial institution which analysed the company (nomura), Mazuda as the analysed company (mazuda), and the publication date of the report is 2016 June 24.

2.2.4 Genres

This sub-corpus contains examples of key genres in financial analysis. The text products are labelled using the following nomenclatures, specific to the genre, e.g., comm_E for company comments in English (for an overview see Sect. 5.2.1). This results in file names such as, “macro_euro_E_jpmorgan-2020-06-30” which reads: data category macro analyses financial markets Europe (macro_euro), language English (E), JP Morgan as the financial institution which published the text (jpmorgan), and the publication date of the 2020 June 30.

3 Methods

Applied and combined were elements from two methods to analyse the research question from a product perspective: applied pragmatic text analysis (Sect. 5.3.1), and critical discourse analysis (Sect. 5.3.2).

3.1 Pragmatic Text Analysis

The pragmatic analysis of texts investigates the relations between linguistic items, situated activity, and social conditions. The analysis is always shaped by researchers’ knowledge in the field. For three reasons, pragmatic text analysis is a suitable method here: first, from a theoretical perspective, this approach demonstrates the texts’ potential to be an appropriate communicational offer in its context; second, from a research practice perspective, large data corpora can be collected thanks to the accessibility of text products; third, with regard to knowledge transformation, product analyses can easily be integrated in writing training and coaching with practitioners (Chapter 9).

A prerequisite for meaningful product analyses, however, is the researcher’s profound knowledge of the respective field and its practices (Sect. 2.10). This knowledge makes it possible to contextualise text features by means of qualitative analysis. Such product-based contextualisation helps keep research methodologies and processes lean. While production and reception need to be examined as processes that take place—and must be examined—in real-world settings, text products are easily (and non-intrusively) accessible as the traces and triggers of the “situated activity” (Sealey & Carter, 2009, p. 75) of communication. Long story short, with in-depth context knowledge, such products allow to draw well-founded conclusions about the practices and processes that need to be controlled or improved, for example (Chapter 6).

According to such basic assumptions of pragmatic text analysis, researchers contextualise the text products based on their experience and knowledge in the respective field. “The pragmatic analysis of texts and discourses deals with the connection between linguistic forms, patterns of action and social conditions. […] The analysis always includes knowledge of the researcher: in particular linguistic knowledge and knowledge of action, but also knowledge of social and cultural connections” (cf. Hoffmann, 2001, p. 283). In this case, “knowledge of social and cultural connections” stands for the complex, dynamic context in financial analysis, which is based on ethnographic context analysis (Chapter 4).

Therefore, the key assumption of pragmatic text analysis is that the communication contexts and processes are reflected in the characteristics of the text product (Jakobs & Perrin, 2014)—provided the researchers have access to appropriate context knowledge. These characteristics range from the microstructure of individual words to the macrostructure of entire texts or the superstructure of a genre (Bazerman, 1994; Bazerman & Devitt, 2014). Such, a pragmatic text analysis of investment recommendations sheds light on the connection between the results of the financial analysts’ evaluation models, their forecasts of future developments, and their advice for investors. The decision as to which features or markers are chosen for analysis depends on the research question and the researchers’ context knowledge—in particular on their theoretical and practical ability to explain what certain text features stand for.

3.1.1 Selection of Text Features

A complex writing situation such as that of financial analysts (Sect. 4.4.1) affects text products and writing processes in a variety of ways, with consequences for variegated text features. As early as 1976, guidelines for financial analysts demanded: “[i]nvestment information must be prepared and disseminated to systematically enable each user to acquire and use as much as he needs for his investment decisions without being overloaded” (Duff and Phelps Inc., 1976, p. 42). Similarly, various German organisations such as the Bundesanstalt für Finanzierungsaufsicht (BaFin; Bundesanstalt-für-Finanzdienstleistungen, 2021) and the Schutzgemeinschaft für Kapitalanleger (SdK) have raised objections to the use of financial jargon and complicated sentences in financial texts (Hieke, 2000; Seibel, 2013).

Since the macrostructure of the texts in the analysed subcorpus Company updates is determined by the domain and the financial institution, i.e., the texts follow a standard format (Sect. 5.4.3), the focus is on those aspects in which the financial analysts are free to choose language options (Brun & Hirsch Hadorn, 2009; Drinkmann & Groeben, 1989; Langer et al., 2011). These are options regarding comprehensibility, comprehensiveness, and reasoning. While a comprehensible text has the potential to be understood by the addressees as coherent and meaningful (Sect. 5.3.3), a comprehensive text conveys all information and reasoning relevant to the communication situation for which it was created. It is, therefore, also necessary to examine the information content of the texts (Sect. 5.3.4) as well as the line of argumentation: the standpoint of a financial analyst offers value added to the reader as it evaluates and classifies information which then is condensed and brought to the point in reasoning (Sect. 5.3.5).

3.1.2 Premises of Text State

Finding from the ethnographic context analyses as explained above (Chapter 4) empirically support, inter alia, the following premises of the text state:

• (a) Each text is read by other team members before publication.

• (b) Each analyst has adapted the text according to the feedback of the teammates.

• (c) Each text was proofread by an internal unit and reviewed and adapted to the bank’s requirements and guidelines.

These premises allow the assumption that the texts have gone through the internal quality assurance processes within the organisation and should therefore meet the intended quality standards in terms of the texts’ communicational potential, which includes comprehensibility, comprehensiveness, and reasoning.

3.2 Elements from Critical Discourse Analysis

In this study, critical discourse analysis (CDA) complements pragmatic text analysis in three ways:

First, it systematically links the linguistic micro with a social macro perspective, as it “brings the critical tradition of social analysis into language studies and contributes to critical social analysis a particular focus on discourse and on relations between discourse and other social elements” (Fairclough, 2012, p. 9). In this study, financial analysts’ writing is considered a situated activity shaping—and being shaped by—organisational and societal structures of banking and the well-being of society at large. CDA foregrounds that this interplay takes part in contexts where participants are only partly aware—if at all—of the enablements and constraints excreted by the social forces and power relations of layered range and persistence in a society (Layder, 2018).

Second, it foregrounds the subjectivism which is inherent in every process of knowledge generation: social analysis is always shaped by the mindset and standpoint of the researcher who conducts the analysis and who is embedded in a society with its own truths and ideologies. “Each society has its regime of truth […]: that is the types of discourse which it accepts” (Foucault, 1984, p. 73). This means that the parameters and values applied in social analysis are not absolute—rather, they are influenced by and dependant on the current ideology in society, the actual context of the issue, and the standpoint of the researcher (Sandig, 1996). In this study, ideological positions of the stakeholders involved are neither neglected nor ignored but made explicit through the means of ethnography and transdisciplinary research. My own position as a researcher is shaped by my experience as both a practitioner and a consultant in the field of investigation, by the basic theoretical assumption of ethnographic and transdisciplinary research (Chapter 4) and, as a consequence, by the focus on generating knowledge that helps sustainably solve the socially relevant problem as mirrored in the research question (Part I, Problem Identification).

Third, critical discourse analysis “is a form of critical social science geared to the better understanding of the nature and sources of social wrongs, the obstacles to addressing them, and possible ways of overcoming those obstacles” (Fairclough, 2012, p. 11). In this view, “social wrongs” are, for example, aspects of social systems that are not beneficial for society in their current form and that can be improved. In this study, the “social wrong” is the incomprehensible reasoning in financial analysts’ text products that has an unfavourable impact on society at large and that can be ameliorated (see Part I: Problem Identification).

Critical discourse analysis proposes four stages to overcome social wrongness: focusing on the issue (1); identifying obstacles when addressing the issue (2); considering whether this issue is needed in its current form and any change would deteriorate matters further (3); and finding possible ways past the problem (4). Thereby, critical discourse analysis intends to include the practice perspective: “the object of such a piece of research should be constructed in a trans-disciplinary way” (Fairclough, 2012, p. 11; Sect. 2.1). In this study, these four stages are reflected in the focus on a key segment of socially relevant communication in finance (stage 1, see Part I); applying long-term ethnography to overcome the inaccessibility of the domain under investigation (stage 2, see Chapter 4 in Part II); taking into account opportunities and limitations of rapidly changing resources in general and communication in particular finance (stage 3, see this chapter and Chapter 6 in Part II); and developing empirically grounded measures to improve financial analysts’ writing together with practitioners (stage 4, see Part III). Ultimately, the approach is oriented towards a more meaningful and transparent financial communication, which benefits, in the long run, all stakeholders, including society at large (Sect. 10.2.3).

What follows for the product approach in this study is that contextual factors (Chapter 4) need to be included and stakeholders’ perspectives need to be made explicit when defining the text features (Sect. 5.3.3) used for the product analysis.

3.3 Text Features Regarding Comprehensibility

In this study, the communicative potential of a text in financial analysis is considered relevant since it affects the probability by which addressees can make informed decisions in financial markets—to their own benefit but also to the benefit of society at large, and, ultimately, even to the benefit of banks who raise their trustworthiness and reputation as professional institutions in the financial world (see Part I, Problem Identification). From such a perspective, the linguistic text features that can significantly influence the communicational success of the addressees matter (Antos et al., 2011; Loughran & McDonald, 2014).

Whereas text features regarding comprehensiveness are based on economic research and established in financial analysis (Sect. 5.3.4), text features regarding comprehensibility are neglected in the quality control in financial analysts’ teams and in banks due to low language awareness of both the organisations and the individuals involved—as discussed in the ethnographic context (Chapter 4). This tends to result in attempts to overcome writers’ double-bind situations (Sect. 6.4.1.2) by using hedging phrases and other blurring linguistic devices (Sect. 6.4.1.2). The two following sections explain the textual features regarding comprehensibility used for the analysis in this study: abbreviations (Sect. 5.3.3.1) and technical terms (Sect. 5.3.3.2).

3.3.1 Abbreviations

Definition: The relevant text features abbreviations are acronyms of complex technical terms which are not explained in the text and which thus make it impossible to thoroughly understand the text.

Context: Although many investors are familiar with general terms and keywords from financial terminology such as “cash flow” or “balance sheet,” most investors do not have profound knowledge in accounting or financial theory. This lack of financial literacy is impressively documented in various studies (Bucher-Koenen & Lusardi, 2011; Lusardi & Mitchell, 2011; OECD, 2014). Any abbreviation that is not explained in the text reduces the text’s comprehensibility and, therefore, its communicative potential. This is a good reason to assume that the higher the number of unexplained abbreviations, the more difficult it is for the audience to process the information provided in the text.

3.3.2 Technical Terms

Definition: Technical terms are words or phrases that refer to a specific subject matter defined by the respective technical community using the technical term. In finance, the understanding of such technical terms and their definitions requires a high degree of financial literacy (Sect. 2.5). Since many retail investors’ financial literacy is low, technical terms risk impeding that the target audience can fully comprehend the communicational offers, e.g., the reasoning in an investment recommendation.

Context: To render technical terms more understandable, most authors of style guides in technical and professional communication recommend explaining them (e.g., Langer et al., 2011). While technical terms facilitate communication within the professional community, they erect barriers by making it impossible for laypersons and investors with low financial literacy to understand the text. Hence, technical terms used in investment recommendations should be explained or paraphrased. The higher the number of unexplained technical terms, the less the audience can understand and process the content and reasoning in the text.

3.4 Text Features Regarding Comprehensiveness

The linguistic text features that can impact the communication success of the addressees in terms of completeness are described as text features for comprehensiveness. They show whether a financial analyst’s text product provides sufficiently comprehensive and detailed information for a well-founded investment decision. For this study, the features are based on quantitative and qualitative key valuations which ground on models developed in economic research and which are established in financial analysis (e.g., Brown et al., 2015; Bucher, 2016; CFA-Institute, 2021). Whereas text features regarding comprehensiveness are deeply anchored and taken as guideline in the financial industry, text features of comprehensibility are not established due to low language awareness as shown in the ethnographic context (Chapter 4).

Quantitative factors such as profit, cash flow, price/earnings ratio and dividend yield help to assess a company’s financial risk. Analysts calculate a profit model for the company for the next few years on the basis of relevant figures from the income statement, the balance sheet, and the cash flow statement as well as data on economic scenarios and industry-specific developments. The absolute valuation (Sect. 5.3.4.1) and the relative valuation (Sect. 5.3.4.2) are based on the figures of the profit model. Qualitative factors help to assess the business risk of a company. Financial analysts observe and analyse a company with regard to various aspects that can have an influence on the business risk of the company and thus on the share price. The most important standard criteria are: story (Sect. 5.3.4.3), market position (Sect. 5.3.4.4), management (Sect. 5.3.4.5), and market trends (Sect. 5.3.4.6).

3.4.1 Absolute Valuation

Definition: The absolute valuation is based on key figures collected by financial analysts in an attempt to quantify their assessments of a company’s financial risk over the next few years. Some of the underlying values are based on assumptions made by the analyst, such as the determination of the discount rate.

Context: The most common valuation models are first, the discounted cash flow model (DCF), calculated as the sum of the discounted free cash flows; second, the discounted dividend model (DDM), calculated as the sum of the discounted dividends; and third, the sum-of-the-parts model (SotP), calculated as the sum of the individual parts of the company. In addition, there are ratios that are primarily evaluated for certain industries, such as solvency in the insurance industry. In the analysis, the absence of any absolute valuation is viewed as partial incomprehensiveness.

3.4.2 Relative Valuation

Definition: The relative valuation is based on key figures with which a company can be compared with the so-called peer group, i.e., with companies that are active in the same market with comparable or similar products, in the historical context or with the overall market.

Context: The most frequently used relative valuation measures are the P/E ratio, the EV/EBITDA, and the PEG. The price/earnings ratio (P/E ratio) signifies the price of a share divided by the expected or achieved earnings per share. The P/E ratio plays a decisive role in the evaluation of a share. The Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortisation (EV/EBITDA) is based on EV being calculated from market capitalisation plus liabilities minus cash and cash equivalents. This ratio is used to determine the fair market value of a company. The Price/Earnings to Growth Ratio (PEG) is calculated: P/E divided by expected percentage profit growth. The PEG is used as a measure of the value of shares of growth stocks. As a rule of thumb, the stock is undervalued if the PEG is less than 1 and overvalued if it is greater than 1. For the analysis of the information content, the P/E ratio is taken into account because this value enables the addressees to make a standardised comparison of how appropriately shares are valued in the market.

3.4.3 Story

Definition: Characteristics for the information content factor story are propositions that relate to the current development of a company and its strategy (Damodaran, 2017; Jameson, 2014).

Context: When assessing a company, it is important to know which situation it is currently in. For example: Is the company on the verge of a takeover, has the management recently changed or has the company just returned to the black?

3.4.4 Market Position

Definition: Characteristics for the information content factor market position are groups of propositions which refer to the position of an enterprise in a market or an industry.

Context: The market position is determined by comparing the company’s key values with those of its competitors in the same market or industry. Values such as turnover, profit or consumer perception serve this purpose. The market position can be evaluated for an entire company or only for a single product of the company. Information on the market position is essential for investors: in order to extrapolate future profits and the development of the share price, it is important to know how a company is positioned in the market in terms of products, quality, costs, or innovation.

3.4.5 Management

Definition: Characteristics for the information content factor management are propositions that refer to members of management bodies of a company with significant influence on the company development.

Context: Planning, realisation, and control of processes are the main strands of responsibility in a company. For their assessment, financial analysts also always assess company management with regard to trustworthiness, consistency, credibility, and corporate governance (principles of corporate management). In a company in which leadership changes again and again or in which management changes its strategy every year, everything has to be taken into account—the stock market price is correspondingly volatile or low.

3.4.6 Market Trends

Definition: Characteristics for the information content factor market trends are propositions that refer to development patterns within an industry.

Context: Market trends depend on various factors such as cyclicality, investor behaviour trends, and market psychology. Depending on whether a company operates in a procyclical, countercyclical or acyclical sector, the best investment strategy is decided on the basis of the current economic situation.

3.5 Text Features Regarding Reasoning

The text features explaining the financial analysts’ advice are described as text features regarding reasoning. In their investment recommendations, financial analysts discuss a company’s quantitative and qualitative key values and advise investors regarding their investment decisions. Thereby, the analysts’ reasoning is of importance: “Argumentation is, therefore, crucial for financial communication, whose fundamental dynamic of connecting information to investment decisions ultimately rests on a reasoning process” (Palmieri et al., 2015, p. 123). In this “reasoning process,” the standpoint of the financial analysts (Sect. 5.3.5.1), the comprehensibility (Sect. 2.6), and the comprehensiveness (Sect. 2.7) of the analyst’s explanations, as well as the occurrence of ambiguity (Sect.  5.3.5.2), play a pivotal role.

3.5.1 Standpoint

Definition: The definition of standpoint is linked to the definition of argumentation: “Argumentation is any discursive activity in which one or more participants, the arguers, put forward a series of arguments, premises or reasons as an attempt to affect the reasonable acceptance of a standpoint – or claim – which is not yet accepted, or it is doubted, by the other participants to the interaction” (Rocci & Pollaroli, 2018, p. 1).

Context: The reasoning in investment recommendations is ideally bases on the financial analysts’ standpoint. This standpoint is the result of, first, the financial analysts’ knowledge and awareness of their own contextual capabilities and constraints; second, the analysts’ processing and analysing key data; and third, the development of the investment story based on these figures. Such, the audience can reconstruct and understand the relation between facts, the financial analysts’ evaluations, their standpoint, and the investment advice. “Argumentation is a form of communication in which reasons are given to justify the acceptability of an uncertain proposition at issue, called standpoint” (Palmieri et al., 2015, p. 123). Thereby, financial analysts may alter between the descriptive, predictive, evaluative, practical, and explanatory standpoints (Sect. 2.9).

3.5.2 Ambiguity

Definition: Text features regarding ambiguity are propositions or groups of propositions in which the key information is imprecise and therefore leaves room for more than one interpretation.

Context: An investor can fully understand information in an analyst’s text and use it as a useful basis for an investment decision if there are no compositional ambiguities, i.e., ambiguities that arise not only from ambiguous words, but also from the construction of larger linguistic units. Nevertheless, financial analysts—who are measured and judged by their forecasting accuracy—tend to write ambiguously when the development of a company they cover is not clear. Thus, their prognosis can be interpreted later in different ways. Although this ambiguity can have a positive influence on the analyst’s forecast performance, it leaves the investor without clear orientation—and thus misses the actual goal of the financial forecast.

4 Results

The results explain which key characteristics of financial analysts’ investment recommendations influence their communicative potential in the given context. Thereby, the text products’ value for investors is considered. In the following, the results are discussed from three angles: product context (Sect. 5.4.1), product function (Sect. 5.4.2), and product structure (Sect. 5.4.3).

4.1 Product Context

The financial sector has many regulations in place that impact financial analysts’ investment recommendations. In Switzerland, the Swiss Banking Association has issued various guidelines for financial analysts, the most important being the “directives on the independence of financial research” which is a code of conduct “to maintain and enhance the reputation of the financial research provided by the Swiss financial services industry, and the reputation of the Swiss financial centre as a whole, by sustaining and strengthening investor confidence in the efficient operation of the Swiss capital market” (Swiss Banking, 2018, p. 4). Such, it includes general provisions as common ground, principles for internal organisation, and external relationships. In the following, the rules which have the strongest impact on the text products are discussed: rules for publication (Sect. 5.4.1.1), and the financial analysts’ standpoint (Sect. 5.4.1.2).

4.1.1 Rules for Publication

Rule 28: A financial analyst may not provide the company with any research results for approval before those results have been published. Any perusal of information by the company to be evaluated prior to publication of the results may only be for the purpose of checking facts. (Swiss Banking, 2018, p. 18)

Financial analysts are not allowed to share their knowledge prior to the publication of their text products. This should prevent front-running of any stakeholder in the financial world.

For the text product, this means that only a very small number of persons—the analyst’s teammates (Sect. 4.4.2)—can double-check and judge the models, assessments, and standpoint of their colleague prior to publication. However, the teammates often do not read their colleagues’ texts diligently because they are busy with their own work. Whereas the analyst can verify information and discuss his or her thoughts with companies’ representatives in, e.g., earnings calls (Palmieri et al., 2015), only the peers who cover the same sector and company can assess whether the analyst’s considerations are plausible, especially regarding a company’s future development that is based on the analyst’s opinion. In other words: financial analysts have mainly soliloquy (Zampa & Perrin, 2016) when writing their investment recommendations.

Rule 24: As a rule, reports and recommendations by financial analysts, particularly any ratings that are published or changed, are to be made available to all recipients in a client category (recipient group) within and outside the bank at the same time. (Swiss Banking, 2018, p. 14)

All market participants have to be informed at the same time, i.e., an information, a communication, a text, a publication should always be made available to the various stakeholders simultaneously. This means that no market participant benefits from an information advantage. The published text products reflect as closely as possible the latest and most up-to-date information; the quicker an event can be published on the financial market, the better the financial analyst can stand out from his or her competitors in the market and the more attention he or she receives.

For the text products, and before all for time-critical company updates, this means that the financial analyst has not a lot of time to write: often, a text needs to be published within a couple of hours, calculated from the first key stroke to the dispatch over the bank’s channels (see also Sect. 6.4.1.1). Hence, there is little time for language matters, reformulation of sentences, and explaining complex financial concepts—especially if there is a lack of context and language awareness.

4.1.2 Financial Analysts’ Standpoint

Rule 11: Financial analysts must not be disposed to write research reports with a predefined conclusion, but must rather, in all cases, be able to reach an independent opinion. (Swiss Banking, 2018, p. 9)

Financial analysts must be independent in their standpoint and judgement. They, therefore, have to base their assessment on facts and must not take into account the particular interests of the analysed company or the bank where they are employed. It is not uncommon for companies to complain to analysts when they lower the company’s rating or publish an investment recommendation that is not favourable for the company. In some cases, this even leads to disputes between the management of the rated companies and the bank’s management.

Such disputes also occur on the level of customer relation between investors and bank, especially in bearish markets when investors lose money. However, it must be clear to the investors at all times that financial analysts’ texts and recommendations are not instructions for action, but merely reflect the analyst’s standpoint and opinion and are for information purposes only. The decision to carry out a transaction on the basis of an analyst’s text is, therefore, the investor’s responsibility. This makes it all the more important for an investor to understand the analyst’s recommendation and the reasoning behind it: the investor must understand why an analyst comes to a certain conclusion and how the recommendation is explained and justified. Understanding this reasoning can lead the investor to draw conclusions for his or her situation that are different from the opinion of the analyst.

One might ask why the analysts’ investment recommendations are labelled as information only and not as instruction. The answer is: financial analysis is, to a certain extent, forecasting the future (predictive standpoint, Sect. 2.9), and even a sound business analysis is subject to unforeseen events or sudden market distortions. To subsequently hold a single financial analyst responsible for a transaction made on the basis of his or her recommendation would not be appropriate given the volatile financial market environment. Nevertheless, analysts are measured by their assessments and standpoint: every year, the accuracy of financial analysts’ estimates is evaluated and rankings of analysts’ performance are compiled—within the organisation, the industry, and on a global level (Cortés, 2009). Rankings that are respected worldwide are published, for example, by Institutional Investor (2020) or Starmine (2020). Financial analysts whose forecasts were particularly accurate are sometimes stylised into superstars (Leone & Wu, 2007). Moreover, the rankings impact the financial analyst’s salary: the more accurate his or her forecasts, the higher the bonus.

For the text products, this means that they reflect the financial analyst’s standpoint which is independent of any stakeholders’ expectations or demands and based on the results of his or her calculation models and on the assessment and evaluation of the qualitative and quantitative factors. However, this laid down independence is at the same time a dependence: the accuracy of their forecasts is directly related to the analyst’s payroll. For this reason, financial analysts try to phrase their standpoint and recommendations such that they fit as many scenarios as possible. What results is a text product with oracle-like hedging phrases.

Example 5.1 financial analysts’ standpoint

“Mit der Obama-Wiederwahl sehen wir zudem eine gewisse Wahrscheinlichkeit, dass die Ende 2012 auslaufenden «wind production tax credits» wieder aufgelegt werden. Dies würde das Abschwungrisiko in den USA für das wichtige Windgeschäft bei 3AC mittelfristig erheblich mindern” (updat_G_ZKB_schweiter_2012-11-08, lines 313–319).

Translation Marlies Whitehouse (MW): “With the Obama re-election, we also see a certain probability that the ‘wind production tax credits’ expiring at the end of 2012 will be reissued. This would considerably reduce the risk of a downturn in the USA for the important wind business at 3AC in the medium term.”

In Example 5.1, the analyst does “see a certain probability” that “the ‘wind production tax credits’ will be reissued” (predictive standpoint) under the condition of “the Obama re-election” (predictive standpoint). Such, “this would considerably reduce the risk of a downturn in the USA for the important wind business at 3AC in the medium term” (predictive standpoint). In other words, there are many conditions which impact the scenario and the analyst is purely on predictional ground. At the same time, it is very likely that his forecast will be true in one way or another: Obama might be re-elected; there will have been a certain probability that of “wind production tax credits” being reissued, whether they are or not is not relevant; the reissue would reduce the risk of a downturn, no matter what.

Example 5.2 financial analysts’ standpoint

“Das Jahresresultat von Schaffner lag beim Umsatz über unseren Erwartungen, ansonsten verfehlte es aber unsere Schätzungen” (updat_G_ZKB_schaffner_2012-12-10, lines 49–51).

Translation MW: “Schaffner’s annual sales result exceeded our expectations, but otherwise fell short of our estimates.”

In Example 5.2, the financial analyst explains that the company posted a better profit than he expected but did not meet his estimates in other respects (explanatory standpoint). While the underlying facts of his explanation are easy to understand, his angle of looking at matters is rather bewildering: in his view, the company’s year results have missed his estimates. Whereas in the professional setting (Sect. 2.2) among peers this is a common perspective, this kind of reasoning lacks context awareness (Sect. 2.3), which makes it difficult for the stakeholders in the financial community to comprehend the deeper meaning behind this statement (Sect. 4.4.4). The equivalent would be to say that the national lottery has failed because the resulting numbers were not the ones that I crossed on the lottery ticket. Example 5.2 shows that such information is more confusing than explanatory—the opposite of what is expected from a financial text product.

4.2 Product Function

The function of financial analysts’ text products is to offer the stakeholders in the financial world a good basis for investment decisions in the jungle of the financial markets. Thereby, the information which the stakeholders obtain has to fulfil certain requirements. Following Grice, these are: appropriate quantity of information (maxim of quantity), true and good quality of information (maxim of quality); no superfluous or redundant, but relevant information (maxim of relevance); and clear, non-ambiguous, concise information (maxim of manner) (Grice, 1967). In other words, if data or information is withheld or misappropriated, the credibility of the analyst is questioned; if the analyst’s database is outdated, the results of the calculation models are wrong and of no use; if the pieces of information are common knowledge, there is no value added for the investors; and if the investment recommendation is ambiguous, the texts are of little use to the investors as they still do not know how to invest their funds.

In the following, the results discuss to which extent the financial analysts’ text products fulfil the requirements to serve as a comprehensible and comprehensive basis for investment decisions (Sect. 5.4.2.1) with a conclusive reasoning (Sect. 5.4.2.2).

4.2.1 Key Information

As basis for investment decisions, financial analysts’ text products need to offer a set of key information, phrased in a language that takes the target readers’ financial literacy into consideration. In the following, the key findings are discussed for every linguistic text feature defined in Sects. 5.3.3 and 5.3.4 and illustrate each of them with an example from the subcorpus Company updates german. The linguistic text features are discussed in this order: abbreviations, technical terms, absolute valuation, relative valuation, company’s story, market position, management, and market trends.

4.2.1.1 Abbreviations

Text analysis revealed that an average of 7 abbreviations occur in a text. The company update Tamedia (updat_G_ZKB_tamedia_2012-11-08) had the most unexplained abbreviations (11), the company update GAM Holding (updat_G_ZKB_GAM_2012-08-15) had the least with 4. For the investors with low financial literacy, this means that it is difficult to understand the company updates without looking up the abbreviations. Some banks have started to offer glossaries on their homepage; however, it can be doubted whether investors are prepared to make this effort and put in the time to understand investment recommendations that they have to pay for.

4.2.1.2 Example Abbreviations

“Zudem wird der EBITDA durch die Umstellung bei IAS 19 (Pensionskassenverpflichtungen) ab 2013 jährlich mit ca. CHF 60 Mio belastet” (updat_G_ZKB_swisscom_2012-11-09, lines 432–434). Translation MW: “In addition, EBITDA will be burdened with approximately CHF 60 million annually from 2013 due to the changeover to IAS 19 (Pension Fund Obligations).”

Comment: The abbreviations EBITDA and IAS 19 are not explained in the text. The reader may, therefore, not be able to understand what this sentence is all about. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) refers to earnings before interest, taxes, depreciation, and amortisation. IAS (International Accounting Standards) is international accounting standards for companies. They are issued by the International Accounting Standards Board (IASB). IAS 19 governs employee benefits. If the IAS regulations change, this can have an impact on the balance sheet and income statement of a company, as in the Swisscom case mentioned above: earnings before interest, taxes, depreciation, and amortisation of property, plant and equipment and intangible assets will, therefore, be reduced annually by around CHF 60 million as a result of the changeover to IAS 19 from 2013.

4.2.1.3 Technical Terms

Text analysis showed that an average of 12 unexplained technical terms occur in a text. The most technical terms were found in the Swiss Life company update (39 technical terms; updat_G_ZKB_swisslife_2012-11-30), while the company update Holcim (updat_G_ZKB_holcim_2012-09-06) managed with 4 technical terms. For the investors, this means that they need a high financial literacy to grasp all the details of the text.

4.2.1.4 Example Technical Terms

Nach einem Bewertungsabschlag von 15% für den tiefen Free Float und die geringe Börsenliquidität ergibt sich ein fairer Wert von 123 und ein Potenzial von 15% (updat_G_ZKB_tamedia_2012-11-08, lines 304–307). Translation MW: “After a valuation discount of 15% for the low free float and the low stock market liquidity, a fair value of CHF 123 and a potential of 15% result.”

Comment: The terms valuation discount, free float, stock exchange liquidity, and fair value are central to understanding the sentence; only if these technical terms are known can the analyst’s assessment be understood. Then it is clear that the analyst values the company 15% lower than the pure numerical values indicate. This discount is applied by the analyst in the calculation because only a few shares are traded freely on the stock exchange (all others are in fixed ownership, e.g., tied to participations) and only a few shares change hands on the stock exchange. The fair value refers to the market value that an analyst expects for a share in the next six to twelve months based on a valuation model; in this case, the analyst assumes that the company’s share price will reach CHF 123—and sees further upside potential of 15%.

4.2.1.5 Absolute Valuation

The analysis showed that every company update contains a good number of absolute valuation elements and hence refers to key figures collected by the financial analyst in an attempt to quantify his or her assessments of a company’s financial risk over the next few years. For investors, this means that the financial analyst has included company key figures into his or her assessment.

4.2.1.6 Example Absolute Valuation

“Unsere DCF-Bewertung attestiert der Panalpina-Aktie weiterhin ein gewisses Potenzial” (updat_G_ZKB_panalpina_2012-11-05, lines 364–365). Translation MW: “Our DCF valuation continues to confirm the Panalpina share’s potential.”

Comment: The analyst believes that Panalpina’s shares are likely to increase based on the discounted cash flow model valuation. The model does not suggest any major price rises but a certain upside potential. It should not be forgotten that these are results of a model calculation. The prerequisite for the analyst to refer to the DCF model, however, is that the reader is familiar with the abbreviation; otherwise, he or she cannot classify the remaining information conclusively.

4.2.1.7 Relative Valuation

Throughout the sub-corpus Company updates german, the analysis indicates that the financial analysts discuss the relative valuation in their text products. Such, the investor can compare the company with the so-called peer group, i.e. with companies that are active in the same market with comparable or similar products, in the historical context or with the overall market.

4.2.1.8 Example Relative Valuation

“Mit unseren neuen Schätzungen ergibt sich selbst für 2014 ein KGV von über 20x, was wir als zu hoch erachten (updat_G_ZKB_panalpina_2012-11-05, lines 396-398). Translation MW: “With our new estimates, even for 2014 we have a P/E ratio of over 20x, which we consider too high.”

Comment: The analyst believes Panalpina’s P/E ratio is too high. He, therefore, considers the ratio of the share price to the expected profit to be disproportionate; all possible positive news is already factored into the price. This means that the share price can hardly rise any more, but on the contrary will fall with future results or news that are not positive. As much as this information is relevant for the investor, it is of little use if the reader does not understand the abbreviation P/E ratio.

4.2.1.9 Story

Financial analysts know a lot about company investment stories and tell them. This is no secret in the financial community, e.g., financial journalists say that “financial analysts are great if you need a story” (Whitehouse, 2019, p. 10)—and it shows in the sub-corpus. All the analysed texts contain detailed investment stories. For the investor, these parts of the texts illustrate the causalities of the company’s development.

4.2.1.10 Example Story

“Seit dem Verkauf des Konzernbereichs Präzisionsrohre im Jahr 2007 hat die Dynamik beim Aus- und Umbau der Dätwyler-Gruppe zugenommen” (updat_G_ZKB_daetwyler_2012-10-31, lines 55–57). Translation MW: “Since the sale of the Precision Tubes Division in 2007, the dynamics of the Daetwyler Group’s expansion and restructuring have increased.”

Comment: The sale of the Precision Tubes Division in 2007 has led to changes in the Daetwyler Group which, firstly, are still having an impact and, secondly, are not yet complete. The company has become more expansive and has changed its structures. Investors can see this as positive if the dynamics increase in this way, but they can also see it as negative because the processes are not yet completed, and new possible risks can arise.

4.2.1.11 Market Position

In all of the analysed company updates, the market position of the respective company is well covered, and this benefits the addressees: for investors, it is important to know how a company is positioned in the market in terms of products, quality, costs, or innovation. This allows assumptions regarding future profits and hence the development of the share price. If a company, for example, is strongly positioned in the ventilator market, it is likely that it will generate profit in a pandemic where the virus attacks the respiratory tract. An investment could be lucrative in this case.

4.2.1.12 Example Market Position

“Mit einem Immobilienportfolio im Wert von CHF 8.5 Mrd ist SPS die grösste Schweizer Immobiliengesellschaft und gehört mit einer Marktkapitalisierung von CHF 4.5 Mrd nach der Kapitalerhöhung zu den Top 5 unter den europäischen Immobiliengesellschaften” (updat_G_ZKB_SPS_2012-09-14, lines 49–53). Translation MW: “With a real estate portfolio worth CHF 8.5 billion, SPS is the largest Swiss real estate company and, with a market capitalization of CHF 4.5 billion following the capital increase, is one of the top 5 European real estate companies.”

Comment: Swiss Prime Site is the largest real estate company in Switzerland in terms of volume. In Europe, the company is one of the five largest real estate companies in terms of market capitalisation. With this information, an investor can imagine how Swiss Prime Site is positioned in the market. This is particularly important with regard to pricing power: the share price of a company that dictates prices will tend to develop differently from the share price of a small company that can only react to the prices of large competitors in the market.

4.2.1.13 Management

The management of a company can, in the worst case, be a black box: it is very difficult to assess a company’s future development when the trustworthiness, consistency, credibility, and corporate governance of its management are unknown. Such, financial analysts are most interested in getting to know the management, even live, if possible, to either get an impression or confirm their gut feeling regarding the board. The importance of the management is also reflected in the company updates as it is mentioned or discussed throughout the analysed subcorpus. For the investors, this means that they have an indication who steers the company and decides about its development. Often, the share price of a company reacts when a new CEO is elected.

4.2.1.14 Example Management

“Seit Oktober 2008 ist CEO Kottman daran, die Geschichte von Clariant neu zu schreiben” (updat_G_ZKB_clariant_2012-11-26, lines 69–70). Translation MW: “Since October 2008, CEO Kottmann has been rewriting the history of Clariant.”

Comment: CEO Kottmann has made significant changes at Clariant since October 2008 and is expected to make further changes. This means that Clariant is still undergoing restructuring, but also that today’s Clariant can no longer easily be compared with Clariant before 2008. Moreover, it would appear that CEO Kottmann’s restructuring process is a long-term project: the company update was written four years after the restructuring process was instigated by the CEO. Such information is important for investors, as it anticipates further changes within Clariant which might potentially impact the share price.

4.2.1.15 Market Trends

Whether a company is active in a procyclical, countercyclical or acyclical market, for example, is crucial for the investment decision. Market trends, driven by, e.g., market psychology, must, therefore, not be neglected in any investment consideration. As the text analysis shows, all of the text products contain parts regarding market trends in which the impact on the company’s performance is discussed. For the investors, this information complements the perspectives mentioned above, and at the same time, the investors are part of the market trends since they can influence share prices with their own investment behaviour.

4.2.1.16 Example Market Trends

“In den 27 Ländern der (EU-27) ist die Stahlproduktion im Elektrostahlverfahren, das durchweg auch von Schmolz + Bickenbach angewendet wird, während der letzten zehn Jahre von 71 auf 76 Mio Tonnen pro Jahr gestiegen” (updat_G_ZKB_schmolz+bickenbach_2012-09-27, lines 194–198). Translation MW: “In the 27 countries of the EU (EU-27), steel production in the electric steel process, which is also used throughout by Schmolz + Bickenbach, has increased from 71 to 76 tonnes per year over the past ten years.”

Comment: The trend in the market shows that volumes in electric steel production have increased over the last ten years. Schmolz + Bickenbach also produces steel, using the electric steel process. It can, therefore, be assumed that the volumes with this type of production have also increased for this company. If this is not the case, it would have to be investigated in more detail why the volumes at Schmolz + Bickenbach have not grown.

4.2.2 Reasoning

Even if company updates contain all the relevant information, it depends, after all, on the reasoning of the analyst whether the investor thoroughly understands what to do and why. Company updates usually contain an explicit recommendation, conclusion, or inference, intending to advise the investor how to act. Whereas a stringent reasoning helps for a convinced decision by the investor, an ambiguous reasoning leaves the audience in the unknown. In the following, I discuss the key findings from the text analysis based on the linguistic text features defined in Sect. 5.3.5—standpoints and ambiguity—and comment examples from the sub-corpus Company updates german.

The product analysis in this study shows that there is a systemic problem regarding the reasoning in financial analysts’ text products. While there is an abundance of factual information and knowledge shared, crucial details for the actual investment decision are missing (see Example 5.4 below). Especially for retail investors with low financial literacy it is difficult to discern these flaws, because the texts are full of “market phrases that sound intelligent but don’t mean anything. The phrases don’t sound like they don’t mean anything, of course. On the contrary, they sound like they mean a lot” (Blodget, 2014, p. 2). In the end, investors are inundated with information, but puzzled at the same time as to what exactly they should decide now.

Example 5.3 Reasoning

“Vom Gesamtwert subtrahieren wir einen Abschlag von 15%. Das Problem dieser Bewertung ist, dass man den Publigroupe-Konzern dafür zuerst aufteilen müsste. Mit dem geplanten Wegfall der 5%igen Stimmrechtsbeschränkung per 2014 steigen natürlich die Chancen einer solchen Transaktion, was aber nicht heisst, dass es dann auch wirklich so weit kommt” (updat_G_ZKB_publigroupe_2012-12-06; lines 254–260). Translation MW: “We subtract a discount of 15 % from the total value. The problem with this valuation is that you would have to split up the PubliGroupe conglomerate first. With the planned abolition of the 5% voting rights restriction as of 2014, the chances of such a transaction naturally increase, but that does not mean that this will actually happen.”

In Example 5.3, in the first sentence, the financial analyst explains how he proceeded for the calculation (explanatory standpoint). In the next sentence, he mentions that there actually is a problem with this valuation consisting in that the whole group would have to be split up first (practical standpoint). In the last sentence, he forecasts that the chance of such a transaction would increase, but at the same time he states that it is not clear whether it will even come to that point (predictive standpoint). In the text it is not clear whether the valuation was calculated only theoretically and then rejected as unsuitable or whether, despite this serious distortion and limitation that the Publigroupe conglomerate would have to be split up first, it is actually included in the analyst’s assessment. For the investor, it ultimately remains unclear what the likelihood of the scenarios is and based on which presuppositions the investment recommendation has been written. In other words: the reasoning lacks clarity.

Example 5.4 Reasoning

“Wir empfehlen, bei Schwäche der Aktie zuzukaufen und behalten unser Rating auf ‘Übergewichten’” (updat_G_ZKB_swisscom_2012-11-09; lines 478–480). Translation MW: “We recommend buying when the stock is weak and keep our rating at ‘Overweight’.”

In Example 5.4, the financial analyst recommends applying the accumulation strategy, i.e., to buy more Swisscom shares when its price dips (practical standpoint). At the same time, he confirms the rating “overweight” which is equivalent to “buy” (descriptive standpoint). Whereas the second part of the sentence—the recommendation to buy—is very clear and understandable, the first part leaves the investor in doubt: the crucial information as to when exactly he or she should buy more Swisscom shares is unclear. “When the stock is weak” is not defined any closer by the financial analyst. On the day of the company update, the share price is at about CHF 390. The low over the last 24 months is at CHF 330. If weak is to be interpreted as relative to the current share price, one should probably invest at around CHF 370; if weak means overall, then an investor should buy more shares below CHF 370. One could argue that an informed investor who follows Swisscom would know how to interpret the financial analyst’s statement—and this person would perhaps be right. However, for investors who seek guidance, because they are not cracks in the telecom industry and their financial literacy is low, the recommendation leaves too much room for surmise and error.

To take this further, with a sentence like this, the financial analyst cannot be wrong: it is always a good move to buy additional shares when the share price is weak as this reduces the overall purchase price and the investor can profit more as soon as the share price rises. Such, whatever the development will be, the financial analyst’s recommendation will have been correct. While this helps the analyst and his standing among the peers, the investors are—despite having read the elaborated company update—none the wiser.

4.3 Product Structure

The structure of financial analysts’ text products varies according to the publications’ topic, scope, and function. In the following, the first section describes the basic elements of financial analysts’ text products (Sect.  5.4.3.1), the second section discusses the key genres and their particularities regarding the product structure (Sect.  5.4.3.2).

4.3.1 Basic Elements

While the various genres of financial analysts’ text products differ in scope, volume, and layout, they contain the same basic text elements. These basic elements specify and inform about:

• (a) the institution and organisational unit that publishes the text (e.g., company logo and department).

• (b) the genre of the text (e.g., company update).

• (c) the company, market, or sector assessed by the financial analysts. These include the financial market region to which the company belongs (e.g., Europe, Switzerland), the location in an industry (e.g., consumer goods), the abbreviations for the query services (e.g., “Bloomberg UHR VX”) or the ticker, i.e., the abbreviation for listed companies in the USA: abbreviations with 1–3 letters denote shares traded on the New York Stock Exchange (NYSE), those with 4 letters are listed on the National Association of Securities Dealers Automated Quotations (NASDAQ).

• (d) the current share or bond price of the company often supplemented by a chart showing the historical development of the share price over the last three to twelve months.

• (e) the market capitalisation (calculated by multiplying the number of company shares by the current share price).

• (f) the free float refers to the securities of a company that circulate freely in the market and are not in firm hands (e.g., participation).

• (g) the most important key figures of the company.

• (h) the analyst who wrote the study (including name, email address, telephone number).

• (i) internal bank rating for the company (rating of creditworthiness).

• (j) the rating with which the company is rated by the analyst or by rating agencies. A rating is issued when a company has bonds outstanding. Many companies are thus simultaneously rated by equity analysts for their shares and by bond analysts and rating agencies for their bonds.

• (k) the investment universe to which the company is allocated by the financial institution. For example, the securities of companies that operate sustainably are divided into a sustainable investment universe that contains only securities of companies that are considered sustainable. An investor who considers sustainability when investing will choose securities from this investment universe accordingly.

• (l) background information on the analysed company such as story, market position, management, market trends.

• (m) the analysts’ recommendation of how they assess the company and its future performance.

• (n) the key figures in tabular form, often over the last three to five years.

• (o) economic data, e.g., exchange rate and gross domestic product (GDP) of a country.

• (p) the legal aspects associated with the printing and use of the text (disclaimer). In order to comply with all legal regulations and guidelines, the disclaimers of many banks, and in particular of international banks, are sometimes swollen to several text pages. The disclaimers are prepared by the legal department and adapted according to the product. But it is also becoming increasingly difficult for specialists to find their way through the thicket of regulations and rules.

A typical text structure follows this model: the first third of the first page contains the basic elements (a)–(k), then follow (l) and (m) as more or less extensive text pages. Tables with figures adjoin the text pages, and the final part consists of the disclaimer which can span over several pages.

Over time, there were shifts in the basic text elements. Before digitalisation, for example, there were no ticker symbols, and the disclaimers have become considerably longer in the wake of the financial crisis 2007/2008.

4.3.2 Key Genres

Key genres in financial analysis include company comments, company updates, sector analyses, macro analyses on financial markets, as well as periodical publications on altering topics, markets, or sectors. These genres are published frequently and are part of the standard publication set of banks and financial institutions (e.g., Citigroup, 2020; Nomura, 2020; Zürcher Kantonalbank, 2020). Whereas the financial analyst is considerably free on the micro-level of formulation and on the meso level of text dramaturgy, the macrostructure within the genres is standardised in each bank, and—to a certain extent—in the financial world.

4.3.2.1 Company Comments

This genre is characterised by short financial analysts’ text products that are published throughout the day and inform the investor about current, short-term events and factors which impact a company’s share price. The financial analyst has to be able to write such company comment within a short time, ideally in less than an hour. Company comments often contain all basic text elements as described in Sect.  5.4.3.1 in a condensed form, e.g., only a couple of key figures and a few paragraphs of text.

4.3.2.2 Company Updates

Over the course of the year, this genre is published in waves: in the reporting season, when the companies publish their figures, financial analysts are very busy writing company updates. As a preparation, they can more or less rely on the reporting calendar which indicates the date on which a company has announced to publish its results. The peak of the year result cycle spans from about the end of January until the end of April, for the half-year result cycle it begins roughly at the end of July. Depending on the industry that a financial analyst covers, it can happen that he or she has to write up to four or five company updates in one day. Company updates are assembled with the basic text elements as described in Sect.  5.4.3.1, whereby the text passages and the parts with key figures are considerably longer than in company comments.

4.3.2.3 Sector Analyses

The comprehensive sector analyses are intended to provide an overview of entire industrial sectors and the most important challenges which companies in these sectors face. Often, a team of financial analysts writes for months on these text products that are used as reference among peers and in the financial world. Sector analyses contain all the basic text elements as described in Sect.  5.4.3.1, usually in clusters: first, there is an overall summary of the sector; second, an overview describes the main players in the sector with key points and figures; third, standardised paragraphs explain the investment case; and fourth, an appendix contains the analyst certification, important disclosures, and a substantial disclaimer.

4.3.2.4 Macro Analyses

In macro analyses, data from the areas of equities, bonds, funds, foreign exchange, interest-rate trading and economy is evaluated and published with the goal to provide an overview. Depending on the publication strategy of the financial institution or the bank, the mix of graphs, info charts, and text passages varies considerably. Since the single financial analyst is not in the focus in these text products, the information given refers to the team as a whole; as a consequence, the basic elements h and m (Sect.  5.4.3.1), for example, are lacking. In comparison with a company update, for example, where the investor deepens his or her knowledge regarding one particular company, macro analyses serve as work of reference.

4.3.2.5 Periodical Publications

Mid- and long-term investment considerations characterise periodical publications. Whereas company comments and updates are concerned with short-term issues, periodical publications aim at explaining the overarching movements, shifts, and interdependences on the financial markets and offer investment recommendations on a larger scale. Thereby, they discuss, e.g., the investment policy of the bank, the state of the global economy and of the markets, the international developments regarding equities, interest rates and currencies, as well as the situation in countries that impact the global economy. Periodical publications usually contain all the basic text elements as described in Sect.  5.4.3.1.

5 Interim Conclusion

Financial text products are written in a complex environment in which the financial analyst is embedded in a layered system consisting of the analyst team, the bank, the financial community, and the financial world. This environment shapes the text products, as it is reflected in the key characteristics of the investment recommendations and it influences their communicative potential. At the same time, the text products shape their environment by framing the financial world’s message, appearance, image—as well as potential conclusions and consequences.

The analysis of the product context (Sect. 5.4.1) shows that financial analysts are subject to strict regulations which impact their writing and hence the text products. These regulations, for instance, lay down that financial analysts are not allowed to discuss their thoughts, doubts, and forecasts regarding a company with anyone other than their teammates or the management of the company itself. And since all the market participants need to receive the text product at the same time to avoid front-running, the analysts often are under severe time pressure, resulting in production times of a mere couple of hours for a company update, for example. As a consequence, there is not much time for amendments if an analyst miscalculated a forecast and got on the wrong track with his or her assessment—and there is even less time for language matters.

The analysis of the product function (Sect. 5.4.2) indicates that financial analysts do provide investors with comprehensive, well-elaborated, and relevant information. They are hence compliant with the established and deeply anchored standards in financial analysis which require the coverage of quantitative and qualitative factors (Sect. 5.3.4). In contrast, however, investment recommendations lack clarity on two levels: first, the text products are interspersed with abbreviations and technical terms which make it difficult for investors with low financial literacy to grasp the content; and second, the reasoning is dysfunctionally ambiguous as it leaves too much room for surmise and error in places where conciseness and clarity is pivotal, e.g., at which point in time the investor needs to buy a share.

The analysis of the product structure (Sect. 5.4.3) shows that the genre and topic of the text product determine the texts’ composition as an arrangement of basic elements. While the financial analyst is considerably free on the micro-level of formulation and on the meso level of text dramaturgy, the macrostructures within the genres are standardised by the publishing bank and throughout the financial world. The structure of text products also reflects trends and developments in finance: for example, in the wake of the financial crisis, the occurrence and size of disclaimers have grown steadily. While disclaimers intend to protect the financial analysts and their employers, the “directives on the independence of financial research” Swiss Banking, 2018 aim to ensure that investors receive information that is prepared with due diligence. This legal framework is reflected in the text products.

The knowledge of the text products’ key characteristics and their influence on the communicative potential is of twofold relevance: from a theoretical perspective, it allows to recognise theoretically rewarding real-life issues and encourage the development of theories which are based on empirical results and insights. From a practical perspective, it enables the stakeholders to develop and implement practicable measures which are compliant with the professional setting of the practitioners. The product perspective in this study has indicated that such measures have to target the ability to write clearly, concisely, and comprehendably even under time pressure. This requires the knowledge of the underlying processes (Chapter 6) and the development of suitable writing techniques (Chapter 8) for professional writers in financial analysis.