Secondary stock offerings and bond offerings generate big bucks for underwriters, so there is a compelling opportunity for mutual back-scratching, at the expense of the investor who naively believes that the analyst is an objective source of information. Additionally, analysts who don't give a positive rating to a company will often find it difficult for them to get information from that company and to get in on its conference calls. If he did that to multiple companies, he'd be unemployed. I don't know why the SEC doesn't ask these firms to spin off their research operations. As described in the section above, analysts' earnings estimates tend to be predictably inaccurate.
Most analysts have a herd mentality.
If all analysts are wrong in the same way, they won't all lose their jobs. So they all watch what numbers each other publishes and they try to stay in the middle of the pack. Because of this, it takes time for the herd to move in response to new information, and so the average expectations lag behind the latest news. I should point out that as with most rules, there are exceptions. Some analysts do provide valuable recommendations and good earnings estimates, and some analysts do not cave in to conflicts of interest.