| In a recent study by Craig Dunbar (1999) of calls made, over three years, by US investment dealers to companies which had gone public and their recommendations made after that date, 37% of the buy recommendations reversed within one year. The work by Michaely and Womack (2000) has clearly shown that investment banking research is biased. Investment bank research analysts and their firms, working as underwriters, talk about their clients' stocks to boost share prices and to help sell them. Some of this is done out of fear of being passed over for future lucrative investment underwriting deals or being locked out of valuable key company information. In 2000, Thomson/First Call reported that only 1% of the 28,000 stocks recommended were sells; 24% were holds; and 75% were buys (Biller, 2001). The world of investment research is being plagued with questions regarding the validity of the information being reported to the public. Investment bank research analysts and their firms are being accused of inflating recommendations. The recent investment scandals and burst of the Internet bubble has caused some retail investors to seek the advice of independent research analysts. Retail investors want reliable investment information to assist them in making investment decisions.; This work looks at analysts' recommendations made by independent research versus investment banking research analysts. It investigates the hypothesis that Investars™, an online independent research firm, provides more objective buy/sell recommendations than Wall Street brokerage firms for the Dow Jones 30 companies. It also investigates the hypothesis that Investars™ is more likely to alter its buy/sell recommendations with a stock decrease of 20% or more. The work shows the asymmetry of analysts' recommendations and decisions after a significant event and provides a recommendation matrix. It adds to the current literature in that: (1) it addresses the needs of the retail investor by providing information about alternatives to ground-based, non-brokerage and regional and national brokerage firms through the use of online independent research, (2) it discusses the accessibility of online independent research and its viability, and (3) it provides a comparative of information being retrieved from Investars™ versus First Call. |
