Analyst forecast characteristics and the cost of debt |
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Authors: | Sattar A Mansi William F Maxwell Darius P Miller |
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Institution: | (1) Pamplin College of Business, Virginia Tech, Blacksburg, VA 24061, USA;(2) Edwin L. Cox School of Business, Southern Methodist University, Dallas, TX 75275-0333, USA |
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Abstract: | We examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view
that the information contained in analysts’ forecasts is economically significant across asset classes, we find that analyst
activity reduces bond yield spreads. We also find that the economic impact of analysts is most pronounced when uncertainty
about firm value is highest (that is, when firms have high idiosyncratic risk). Our findings are robust to controls for private
information in equity prices and level of corporate disclosures. Overall, the results indicate that the information contained
in analyst forecasts is valued outside the equity market and provide an additional channel in which better information is
associated with a lower cost of capital. |
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Keywords: | |
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