Why do all financial research focus on analysing top 500 listed companies only?

Question

Why do all financial research focus on analysing top 500 listed companies only?

Answer 1

ALL financial research? don't you mean "most"?  

Answer 2

correct - "most" not "all".

Investors don't pay for research directly, but even if they did, it would be the same model:

Smaller companies have fewer investors and generally their shares trade less frequently.

If you are going to spend extensive amounts of time getting to know and following a company, you need to be able to "sell" your work to a large enough audience so that it is worth your time.

Research analysts tend to only cover "larger" companies, because there is enough interest in the stock.  The research arm of a firm gets paid via providing research, and then having the investor place trades through their firm.

So you can see why covering some small company wouldn't make any sense, because even if an investor loved your research and wanted to invest their money, it would be difficult for them to pay you because of the size / illiquidity of the stock.