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Marketing of Stocks by BrokerageFirms: The Role of Financial Analysts

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  • Kee H. Chung

Abstract

This paper examines the role of financial analysts as a marketing aid to brokerage firms. This study suggests that investors prefer to hold stocks of high-quality companies and that financial analysts help the marketing efforts of brokerage companies by focusing their analysis on such stocks. This paper uses S&P?s common stock rankings as empirical proxies for firm quality and finds that stocks rated by S&P are followed by more analysts than those not rated. Furthermore, among those stocks rated by S&P, more analysts follow highly rated stocks than poorly rated ones. This study also finds a significant increase (decrease) in analyst following when S&P upgrades (downgrades) quality rankings. Overall, empirical evidence supports the marketing hypothesis of analyst following.

Suggested Citation

  • Kee H. Chung, 2000. "Marketing of Stocks by BrokerageFirms: The Role of Financial Analysts," Financial Management, Financial Management Association, vol. 29(2), Summer.
    • Handle: RePEc:fma:fmanag:chung00
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    Cited by:

    1. Chan, Kin Wai & Chang, Charles & Wang, Albert, 2009. "Put your money where your mouth is: Do financial firms follow their own recommendations?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 1095-1112, August.
    2. Azzi, Sarah & Bird, Ron, 2005. "Prophets during boom and gloom downunder," Global Finance Journal, Elsevier, vol. 15(3), pages 337-367, February.
    3. Mola, Simona & Guidolin, Massimo, 2009. "Affiliated mutual funds and analyst optimism," Journal of Financial Economics, Elsevier, vol. 93(1), pages 108-137, July.
    4. Kristine Watson Hankins & Mark J. Flannery & M. Nimalendran, 2008. "The Effect of Fiduciary Standards on Institutions' Preference for Dividend‐Paying Stocks," Financial Management, Financial Management Association International, vol. 37(4), pages 647-671, December.
    5. William Baker & Gregory Dumont, 2014. "Equity Analyst Recommendations: A Case for Affirmative Disclosure?," Journal of Consumer Affairs, Wiley Blackwell, vol. 48(1), pages 96-123, March.
    6. Bailey, Warren & Andrew Karolyi, G. & Salva, Carolina, 2006. "The economic consequences of increased disclosure: Evidence from international cross-listings," Journal of Financial Economics, Elsevier, vol. 81(1), pages 175-213, July.
    7. Kee H. Chung & Sean Yang, 2015. "Reverse Stock Splits, Institutional Holdings, and Share Value," Financial Management, Financial Management Association International, vol. 44(1), pages 177-216, March.
    8. Chung, Kee H. & Cho, Seong-Yeon, 2005. "Security analysis and market making," Journal of Financial Intermediation, Elsevier, vol. 14(1), pages 114-141, January.
    9. Chi-Hsiou D. Hung & Anurag Banerjee & Qingrui Meng, 2017. "Corporate financing and anticipated credit rating changes," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 893-915, May.

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