Financial Accounting Blog

Monday, November 17, 2003

EMH assumes that investors are competent, well informed, well funded, make continuous evaluations, and receive a regular stream of information. With "Fee based" 'independent' research firms, its hard to believe that the conditions required for an efficient market are possible.

Eliot Spitzer has engineered a reform plan that aims to end the "scandalous relationship between research analysts and the investment banking clients of the firms that employ them". The reform "requires ten big firms to collectively spend $450 million on independent research in the next five years. However in "Son of Grubman" in November 24, 2003 of Forbes, Emily Lambert identifies how "fee based" research firms that qualify as independent are lobbying to take advantage of the opportunity.

These firms are often compensated by the very corporations that they are evaluating. Often requiring compensation to come in the form of cash payments or restricted stock. I think Louis Thompson of the National Investor Relations Institute puts it best with "For [fee-based analysts] to say they're independent is just nonsense". Only time will tell....