The impact of meeting or beating analysts' operating cash flow forecasts on a firm's cost of debt |
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Authors: | Christopher T Edmonds Jennifer E Edmonds |
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Institution: | a University of Delaware, Alfred Lerner College of Business & Economics, 303 Alfred Lerner Hall, Newark, DE 19716, United Statesb Saint Joseph''s University, Erivan K. Haub School of Business, 5600 City Avenue, Philadelphia, PA 19131, United Statesc Virginia Tech, Pamplin College of Business, 3007 (0101) Pamplin Hall, Blacksburg, VA 24061, United States |
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Abstract: | Extant literature provides conflicting results with respect to the usefulness and accuracy of analysts' operating cash flow forecasts. Our study empirically examines the importance and influence of meeting or beating analysts' operating cash flow forecasts on a firm's cost of debt. Results indicate that firms meeting/beating analysts' cash flow forecasts have higher initial bond ratings as well as lower initial bond yields. Additionally, based upon an analysis of rating changes, firms meeting or beating cash flow forecasts have a higher probability of receiving a debt rating upgrade and a lower probability of a ratings downgrade compared to firms missing cash flow forecasts. A direct comparison of the importance of meeting/beating cash flow versus earnings benchmarks indicates that debt market participants appear to incrementally value both types of forecasts, and contrary to selected equity market findings, neither forecast subsumes the other for debt market participants. |
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Keywords: | Analysts cash flow forecast Bond ratings Bond yields Meeting/beating benchmark |
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