Seeking Analyst Coverage: Steering User-Generated Content Using Monetary Incentives

Abstract

We study how monetary incentive structures affect the selection of stocks covered by non-professional analysts (NPA), as well as the quality of the published research articles. Specifically, we use two exogenous incentive structure changes on a peer-to-peer financial analysis platform as a natural experiment with professional analysts (PA) as the control group. Our results suggest that monetary incentive structures are an effective tool to increase and steer NPA research support. The incentive structure changes increased coverage in the targeted market capitalization segments and primarily affected contributors who joined the platform more recently. We further show that NPA coverage affects market liquidity to a similar extent as PA coverage. The incentive structure changes did not deteriorate the quality of NPA research support as measured by its impact on liquidity. In summary, our findings suggest that NPA coverage may be a suitable complement to, if not substitute for, PA coverage.

Keywords: financial analyst, analyst coverage, monetary incentives, user-generated content, peer-to-peer platforms, stock market liquidity

JEL Classification: G14, G20