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(EDITORIAL from Korea Herald on April 12)

All News 07:03 April 12, 2016

Undue pressure
Criticism of firms deserves to be heard

In an unprecedented move, research heads of more than 30 domestic securities companies released a joint statement Thursday to condemn Hana Tour for attempting to block research that was critical of its performance.

The collective action was prompted by an official of Hana Tour, the nation's largest travel agency, who threatened to freeze out an analyst at Kyobo Securities for writing a negative report on the company.

In his March 30 report, the Kyobo analyst offered a sell rating on Hana Tour, lowering its target price from 200,000 won ($175) to 110,000 won.

The main reason for his sell recommendation was the unexpected difficulties the travel agency's new duty-free business had faced. Its outlet was scheduled to open at the beginning of this year, but was delayed until late April.

The sell rating was reasonable, but a Hana Tour official in charge of investor relations called the analyst to lodge a protest. He reportedly threatened to restrict the analyst from visiting the company.

Hana Tour is not the first company that has attempted to exercise undue influence on analysts. In fact, big corporations wield far more influence on them.

A recent example involves SK Telecom, which forced SK Securities to cancel its report on the merger between CJ HelloVision and SK Broadband. The powerful mobile operator, which is the parent company of SK Broadband, asserted that the analysis was erroneous.

Last year, Taurus Investment & Securities Co. faced pressure from Hyundai Department Store to withdraw its analysis on the competition among major business groups over duty-free licenses. Taurus viewed Hyundai's bid as a long shot.

These cases are just the tip of the iceberg. Corporate pressure is so pervasive that most analysts actually refrain from producing critical research on companies. Hence, the dearth of sell ratings from stock analysts.

This is well illustrated by an analysis of the research reports from analysts at the nation's top 10 securities companies. From 2011 to June 2015, some 50,000 reports had been produced by these analysts. In total, these reports contained a mere 23 sell ratings, while 90 percent had buy ratings.

It is right for stock analysts to call on listed companies to stop putting undue pressure on them. But at the same time, they should be ready to resist such pressure and secure a space for critical voices for the benefit of investors.

Another solution to the problem may be the establishment of independent research providers that have no conflict of interest with listed companies. The financial regulator would do well to consider this option.

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