Pay or persuade and the quality of outcome – The choice between paid-for and sell-side analysts research for SME

Financial analysts mainly focus on large companies. To enhance analyst coverage small and medium enterprises (SMEs) have to decide to whether pay for analyst reports or put effort in persuading analyst firms for additional sell-side coverage. While monetarize incentives can affect the quality of analyst reports, this research focuses on the textual quality of paid-for and sell-side analysts’ reports. We analyzed the market perception of over 20,000 analyst reports based on sentiment, complexity, and readability. In contrast with the skepticism regarding the rationality of paid-for research, no differences in sentiment and tone of analyst reports are observed. Furthermore, paid-for reports are more understandable and exhibit higher readability, indicating superior textual quality. While textual attributes are correlated with investor reactions to analysts' publications, the market perception is identical for paid-for and sell-side reports. The results suggest that paying for analyst reports is a valuable tool for SMEs to enhance financial transparency and attract investors.