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Pay-for-analysis

Pay-for-analysis is a term used to describe firms that are paid to publish research on their clients (usually publicly traded companies).

Contents

Expanded Definition

Of all the various sources of information available on wall street, pay for analysis houses may be the single worst. Small companies often have trouble attracting analysts from brokerage houses to cover their stocks. In an attempt to help their share performance, they will often hire pay for analysis firms to cover them instead. The reports as you might expect are almost universally positive and overly optimistic. The conflict of interest issues that face this research is immense. OTC companies often will use this tactic.

Importance to Investors

Every investor should completely disregard this kind of research. The conflict of interest issues create enough bias to the point that the research is completely unreliable. These reports often end up being little more than glorified press releases. Most of these firm's picks underperform the market after being published. In fact an investor may consider a pay for analysis report to be a red flag, as firms that focus on hyping their companies to investors have a history of underperfoming those that focus on improving their results. A company that uses pay for analysis research may be tacitly admitting that they cannot earn the attention of street analysts or at worst be attempting to pump and dump the price for insiders.

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