Research Handbook on the Economics of Corporate Law
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Research Handbook on the Economics of Corporate Law

Edited by Claire A. Hill and Brett H. McDonnell

Comprising essays specially commissioned for the volume, leading scholars who have shaped the field of corporate law and governance explore and critique developments in this vibrant and expanding area and offer possible directions for future research.
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Chapter 17: The Role and Regulation of the Research Analyst

Jill E. Fisch


Jill E. Fisch 1. INTRODUCTION The role of the research analyst (also known as an equity analyst or a securities analyst) is to provide information to the marketplace. Analysts enhance capital market efficiency by enabling stock prices to reflect information and by reducing the need for each investor individually to gather and analyze that information. As the United States Supreme Court explained in Dirks,1 ‘The value to the entire market of these efforts cannot be gainsaid; market efficiency in pricing is significantly enhanced by such initiatives to ferret out and analyze information, and thus the analyst’s work redounds to the benefit of all investors.’ Developments in the structure of the capital markets as well as the accessibility of firmspecific information led to substantial growth in the research industry. At the same time, the industry faced a continual challenge with respect to the cost of producing quality research and the difficulties involved in exploiting that information profitably. This challenge, in the 1990s, led the major Wall Street Investment Banks to fund their research through investment banking revenues, creating the subsidization structure underlying the conflicts of interest and ensuing scandals revealed by then New York Attorney General Eliot Spitzer in 2002. The scandals led to the Global Research Settlement between ten Wall Street investment banks and the Securities and Exchange Commission (SEC), the New York State Attorney General, the North American Securities Administrators Association, the National Association of Securities Dealers and the New York Stock Exchange. They also led to regulatory...

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