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The neglected firm effect is the market anomaly phenomenon of lesser-known firms producing abnormally high returns on their stocks. The companies that are followed by fewer analysts will earn higher returns on average than companies that are followed by many analysts. The abnormally high return exhibited by neglected firms may be due to the lower liquidity or higher risks associated with the stock. At the same time, the impact on returns, ^[1] and regarding earnings management is not always clear.^[2]

According to Investopedia: ^[3] "Neglected firms are usually the small firms that analysts tend to ignore. Information available on these companies tends to be limited to those items that are required by law, on the other hand, have a higher profile, which provides large amounts of high quality information (in addition to legally required forms) to institutional investors such as pension or mutual fund companies."

References

^ Zuckerman, Ezra W. (18 May 1999). "The Categorical Imperative: Securities Analysts and the Illegitimacy Discount". American Journal of Sociology. 104 (5): 1398–1438. doi:10.1086/210178. JSTOR 10.1086/210178. S2CID 143734005.
^ Laura Lindsey, Simona Mola (2013).Analyst Competition and Monitoring: Earnings Management in Neglected Firms, DERA Working Paper 2013-04
^ Adam Hayes (2022). Neglected Firm Effect

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[1] Zuckerman, Ezra W. (18 May 1999). "The Categorical Imperative: Securities Analysts and the Illegitimacy Discount". American Journal of Sociology. 104 (5): 1398–1438. doi:10.1086/210178. JSTOR 10.1086/210178. S2CID 143734005.

[2] Laura Lindsey, Simona Mola (2013).Analyst Competition and Monitoring: Earnings Management in Neglected Firms, DERA Working Paper 2013-04

[3] Adam Hayes (2022). Neglected Firm Effect

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+{{Short description|Stock market anomaly}}
-neglected firm effect company
+{{Multiple issues|{{refimprove|date=January 2010}}
+{{original research|date=January 2010}}}}
+The '''neglected firm effect''' is the [[market anomaly]] phenomenon of lesser-known firms producing abnormally high [[Return on investment|returns]] on their [[stock]]s. The companies that are followed by fewer [[Financial analyst|analysts]] will earn higher returns on average than companies that are followed by many analysts. The abnormally high return exhibited by neglected firms may be due to the lower [[liquidity]] or higher risks associated with the stock.
-Neglected firm effect (Neglected company effect )
+At the same time, the impact on returns, <ref>{{cite journal|jstor=10.1086/210178|title=The Categorical Imperative: Securities Analysts and the Illegitimacy Discount|first=Ezra W.|last=Zuckerman|s2cid=143734005|date=18 May 1999|journal=American Journal of Sociology|volume=104|issue=5|pages=1398–1438|doi=10.1086/210178}}</ref> and regarding [[earnings management]] is not always clear.<ref>Laura Lindsey, Simona Mola (2013).[https://www.sec.gov/files/rsfi-wp2013-04.pdf Analyst Competition and Monitoring: Earnings Management in Neglected Firms], DERA Working Paper 2013-04</ref>
+According to [[Investopedia]]: <ref>Adam Hayes (2022). [https://www.investopedia.com/terms/n/neglectedfirm.asp  Neglected Firm Effect]</ref> "Neglected firms are usually the small firms that analysts tend to ignore. Information available on these companies tends to be limited to those items that are required by law, on the other hand, have a higher profile, which provides large amounts of high quality information (in addition to legally required forms) to institutional investors such as [[pension]] or [[mutual fund]] companies."
-==The theory==
+==References==
-Coase developed his theory when considering the regulation of [[radio frequencies]]. Competing radio stations could use the same frequencies and would therefore interfere with each others' broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently.  What Coase proposed in 1959 was that as long as [[property rights]] in these frequencies were well defined, it ultimately did not matter if adjacent [[radio station]]s interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted.  His reasoning was that the station able to reap the higher economic gain from broadcasting would have an [[incentive]] to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter whether one or the other station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use.  Of course, the parties themselves would care who was granted the rights initially because this allocation would impact their wealth, but the end result of who broadcasts would not change because the parties would trade to the outcome that was overall most efficient.  This counterintuitive insight – that the initial imposition of legal entitlement is irrelevant because the parties will eventually reach the same result – is Coase’s invariance thesis.
+{{Reflist}}
+{{finance-stub}}
+{{DEFAULTSORT:Neglected Firm Effect}}
-Coase's main point, clarified in his article '[[The Problem of Social Cost]]', published in 1960 and cited when he was awarded the [[Nobel Prize]] in 1991, was that transaction costs, however, could not be neglected, and therefore, the initial allocation of property rights often mattered. As a result, one normative conclusion sometimes drawn from the Coase theorem is that property rights should initially be assigned to the actors gaining the most utility from them. The problem in real life is that nobody knows [[ex ante]] the most valued use of a resource and also, that there exist costs involving the reallocation of resources by government.  Another, more refined normative conclusion also often discussed in [[law and economics]] is that government should create institutions which minimize transaction costs, so as to allow misallocations of resources to be corrected as cheaply as possible.
+[[Category:Financial markets]]
+[[Category:Efficient-market hypothesis]]
+[[Category:Financial economics]]
+[[Category:Behavioral finance]]