According to The Nasdaq Stock Market Inc., about 1,200 of its 3,200 listed companies and 35 percent of all publicly held companies have no research coverage — that is, they are relegated to “orphan” status. In addition, about 50 percent of all public companies have two or fewer analysts.
Since January 2002, in fact, 691 companies have lost analyst coverage, representing more than 17 percent of the Reuters Estimates universe of companies with coverage, according to the research company. The reason, not surprisingly, is that investment banks prefer to follow the larger companies that generate greater trading volumes.
In response, Nasdaq and Reuters Group PLC announced that they have created the Independent Research Network to help public companies obtain analyst coverage. The IRN will aggregate multiple, independent research providers to procure and distribute equity research on behalf of undercovered U.S.-listed companies as well as private companies looking for research coverage.
Nasdaq, Reuters, and the IRN will play no role in preparing the research or issuing recommendations, the announcement stressed, so there is no potential conflict of interest.
“We know that a lack of research coverage impacts company valuation, liquidity, and ultimately the welfare and growth of public companies,” said Bob Greifeld, president and chief executive officer of The Nasdaq Stock Market, in a statement. “The Independent Research Network’s model addresses the issues of independence, credibility and distribution that have held the research category back. We believe IRN can begin to reverse the trend away from less information for investors to more and provide a better window into public companies.”