Abstract
The SEC Advisory Committee on Smaller Public Companies recommends paid-for research to fill the void created by declining sell-side coverage. Potential conflicts of interest inherent in paid-for research challenge this recommendation. We evaluate whether paid-for research provides value to investors or merely reflects hype. Analyses of one-and two-year-ahead paid-for earnings forecasts fail to identify significant bias. Using a portfolio approach, favorable (unfavorable) paid-for recommendations yield positive (negative) stock returns at release, with upward (downward) drift over the following year. Regressing future stock returns on recommendations and valuation estimates using paid-for analysts' forecasts yields similar results. Further, results fail to indicate significant differences in paid-for and matched sell-side research. Overall, our evidence suggests that paid-for research provides relevant information for the buy-and-hold investor that is comparable to that of matched sell-side research, providing empirical support for the SEC Advisory Committee recommendation.
Original language | English (US) |
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Pages (from-to) | 903-931 |
Number of pages | 29 |
Journal | Accounting Review |
Volume | 89 |
Issue number | 3 |
DOIs | |
State | Published - May 2014 |
Externally published | Yes |
Keywords
- Paid-for analysts
- Recommendations
- Sell-side analysts
- Valuation estimates
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics