INTERMEDIATION IN THE MARKET FOR EQUITY RESEARCH

We study a unique setting in Singapore where an intermediary assigns firms willing to pay for coverage to research providers that also produce nonintermediated research. Our evidence suggests the intermediated model is a promising alternative to the traditional sell-side model, which neglects small firms and suffers from conflicts of interest. Specifically, intermediation enhances coverage of small firms and sharply ameliorates optimism-"strong buys" account for one-third of provider recommendations for nonparticipating firms but virtually none of their recommendations for participating firms. Furthermore, research quality is not compromised as the information content of intermediated and nonintermediated research reports are comparable.