Advantages of issuer paid research for crowdfunded and Regulation A+ issuers

Issuer paid equity research or paid-for equity research as it is commonly called is a vital factor in improved liquidity. Essentially, it is characterized as being offered by the organizations which in essence does not have any kind of investment banking or other consultancy interactions with the company which is the subject matter of the report and the researching specialist is compensated by the subject company. Having analyst coverage presents great advantages while not having it presents significant disadvantages.

With issuer paid equity research several direct benefits are enjoyed such as increasing market efficiency and having the gap between those investors who want the research without paying for it and companies who realize that Wall Street or other similar financial hubs are not likely to provide research on their small companies stock. Further to this it must be noted that the research provides information to the broadest possible audience at no charge to the reader because the subject company is the one that has funded the research.

While these are potentially some of disadvantages there are consequences of not having issuer paid equity research. With smaller public corporations lacking research and analyst coverage  presents a risk to corporations and to the investing community alike. What does this result in you may ask?

Firstly, where companies do not have any independent analyst coverage they often experience a lower market capitalization as compared to companies which do have such a cover, and as such are more prone to having to higher capital costs when compared to their analyst-covered competitors.

Secondly, with a lack of research what this inherently means is that there is less information which can be provided to entities such as investment bankers, fund managers and private investors. When this happens ultimately what this does is that it lowers the efficiency of the markets.

Thirdly, a lack of coverage by independent professionals limits the ability of both existing shareholders and potential shareholders when it comes to their ability to get an informed outsider’s perspective on identifying strong points together weak points and identifying areas for improvement.

Additionally it should be noted that analyst reports are a stimulus for the selling and buying of shares but the absence of such reports would in turn reduce the possibility of a strong trading market being formed.

No owner or business entity would want to experience such undesirables. To avoid these and other consequences from being experienced as a result of not having issuer paid equity research is as a result most advisable.

As with all types of research, with issuer paid equity research there must be proper management. In addition to being the most transparent and easy for investors to understand if managed properly, the end product of issuer-paid research is no different from other forms of research. Ideally if management at the issuer-paid research firm is committed to high-quality independent research, then the direct result it this will be reflected throughout the firm and it will be reflected in the firm’s research.