Anonymous Equity Research

• Published date: 01 May 2021
• Author: TRAVIS DYER,EUNJEE KIM
• Date: 01 May 2021
• DOI: http://doi.org/10.1111/1475-679X.12359

DOI: 10.1111/1475-679X.12359

Journal of Accounting Research

Vol. 59 No. 2 May 2021

Printed in U.S.A.

Anonymous Equity Research

TRAVIS DYER∗AND EUNJEE KIM∗

Received 2 December 2019; accepted 3 February 2021

ABSTRACT

Crowdsourced financial information platforms often allow content contrib-

utors to publish equity research anonymously. This study examines whether

investors value or discount information in anonymous equity research. In the

short window around research releases, we find that investors’ stock price re-

action to anonymous research is muted in comparison to nonanonymous re-

search. Consistent with credibility concerns influencing investor response, we

document that this discount to anonymous research dissipates as the moni-

toring of content contributors intensifies and as authors develop a reputa-

tion for high-quality reporting. In addition, we perform a content analysis on

the research reports and find that the muted market reaction to anonymous

equity research is robust to controlling for textual attributes of information

content, further supporting our inference that investors’ are concerned

about the credibility of anonymous equity research.

∗Cornell University

Accepted by Rodrigo Verdi.We thank an anonymous referee, Sanjeev Bhojraj, Beth Blanke-

spoor, Michael Drake, Stephen Glaeser, Nick Guest, Ryan Guggenmos, Mark Lang, Jim Omar-

tian, Jun Oh, Mark Piorkowski (discussant), Kristi Rennekamp, Mani Sethuraman, Blake

Steenhoven, Andy Van Buskirk, Elisha Yu, Xinyu Zhang, Luo Zuo, and workshop partici-

pants at Journal of Accounting Research Conference (2020), Brigham Young University, Cor-

nell University, FARS Midyear Meeting (2020), and BYU Accounting Research Symposium

(2019) for helpful comments and suggestions. Any remaining errors are our own. An on-

line appendix to this paper can be downloaded at http://research.chicagobooth.edu/arc/

journal-of-accounting-research/online-supplements.

Travis.Dyer@cornell.edu

575

© 2021 The Authors. Journal of Accounting Research published by Wiley Periodicals LLC on behalf of

University of Chicago on behalf of the Chookaszian Accounting Research Center

This is an open access article under the terms of the CreativeCommonsAttribution License, which permits

use, distribution and reproduction in any medium, provided the original work is properly cited.

576 t. dyer and e. kim

JEL codes: D83, G14, G20, M40, M41

Keywords: anonymity; crowdsourced; equity research; communication;

seeking alpha

1. Introduction

Crowdsourced financial information platforms, such as Yahoo! Finance and

Seeking Alpha, have become an important source of equity research for in-

vestors, receiving attention from regulators, practitioners, and academics. A

growing literature examines whether research on these platforms provides

relevant information and generally finds it predicts stock market outcomes

and earnings (e.g., Antweiler and Frank [2004], Chen et al. [2014], Jame

et al. [2016]). Recently, however, the anonymity of content contributors on

these platforms has generated controversy, with some investors expressing

concerns about report credibility when content is published anonymously

(Barron’s [2014], Seeking Alpha [2014b], Seeking Alpha [2017], Forbes

[2018]).

This credibility concern is well illustrated in a recent Securities and Ex-

change Commission (SEC) enforcement action. In 2014, the SEC filed a

lawsuit against Galena Biopharma for promoting its stock on Seeking Al-

pha (SA) through anonymous authors who falsely purported to be inde-

pendent and objective (SEC [2017b]). In the period around the publica-

tion of these anonymous research reports, the CEO at Galena Biopharma

traded approximately $3.8 million of the company’s stock (Law360 [2015]).

Immediately following these allegations, SA acknowledged the potential in-

tegrity issue of anonymous authors and made substantial improvements

to their author verification process (Seeking Alpha [2014a, 2017]). Moti-

vated by (1) the growing importance of crowdsourced financial informa-

tion platforms, (2) the SEC’s recent lawsuit involving anonymous equity re-

search, and (3) the changes in SA’s author integrity policies, we study how

investors react to the anonymously authored equity research on financial

information platforms.

Despite the regulatory and media interest in author anonymity

(Barron’s [2014], SEC [2017a], Forbes [2018]), little theoretical and em-

pirical evidence exist on the value of the information provided by anony-

mous sources. Traditional cheap-talk models evaluate communication be-

tween information senders and receivers under various information and

incentive structures (e.g., Crawford and Sobel [1982], Farrell and Ra-

bin [1996]). However, these models generally assume that an informa-

tion sender’s identity is common knowledge. Similarly, empirical evidence

on the value of anonymous information is also scarce. To the best of

our knowledge, few papers investigate the impact of anonymous infor-

mation senders on receivers’ decision-making (e.g., Forman, Ghose, and

Wiesenfeld [2008]). This study addresses this void in the literature and

anonymous equity research 577

expands our understanding of investors’ response to information from

anonymous sources.

Allowing anonymity on crowdsourced platforms introduces competing

forces that differentially affect the informativeness of equity research. On

one hand, anonymity may encourage the publication of unique informa-

tion unavailable through traditional outlets. This argument, often advo-

cated by the executives of crowdsourced platforms, stems from the belief

that certain unpopular or contrarian ideas would place the author at risk,

and therefore could not be published in the absence of anonymity. Accord-

ing to the CEO of SA, Eli Hoffmann, these risks range from physical safety

(e.g., surveillance of assets); professional vulnerability (e.g., loss of access to

management or being fired); and social vulnerability (e.g., negative social

interactions; Seeking Alpha [2014b]).1If anonymity mitigates these risks

for authors while facilitating the publication of valuable information, then

investors may react more to research from anonymous authors, relative to

nonanonymous authors.

On the other hand, allowing anonymity on crowdsourced platforms may

encourage bad actors to provide misleading or fictitious information with

the intention of moving stock prices in a prespecified direction (SEC

[2017a]). The inclusion of such exploitative anonymous actors may com-

promise the credibility and, hence, the overall informativeness of anony-

mous equity research on a given platform. This can be particularly prob-

lematic on crowdsourced financial information platforms where authors

can change their online identities and insulate themselves from reputation

damage (e.g., Barron’s [2014], Forbes [2018]). Thus, investors may per-

ceive investment research provided by anonymous authors as less credible,

and consequently discount the information.

To understand whether and how investors react to anonymous equity

research, we use a sample of articles published on SA from January 2006

to October 2018. We adopt the concept of discursive anonymity, which

refers to the condition in which verbal communication cannot be at-

tributed to a particular source (e.g., Anonymous [1998], Qian and Scott

[2007]). We define anonymity as the perceived anonymity of SA authors

to readers, measured by the amount of identifiable information in authors’

biographical profiles—that is, how easily readers can attribute an author to

a real, identifiable person. However, it is worth noting that the relevance

of authors’ biographical information should diminish as authors build

a reputation under their online identities. So, we carefully control for

1Personal risks to Seeking Alpha authors are exemplified in the case of “Montana Skep-

tic.” Montana Skeptic is an author who posted short ideas about Tesla on the platform. In

July of 2018, Montana Skeptic’s identity was publicly revealed by a Twitter user; Elon Musk

subsequently contacted the top management of the author’s company and threatened to sue

Montana Skeptic (The Wall Street Journal [2018], Financial Times [2019]). Responding to

this event, Seeking Alpha has tightened its policy regarding any attempt to violate authors’

privacy (Seeking Alpha [2018]).