Marketing of stocks by brokerage firms: The role of financial analysts

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.