Equity Analysts Affiliated with Corporate Lenders
David C. Cicero
University of Alabama - Culverhouse College of Commerce & Business Administration
Swaminathan L. Kalpathy
Texas Christian University - M.J. Neeley School of Business
National University of Singapore (NUS) - Department of Finance; Southern Methodist University (SMU) - Edwin L. Cox School of Business
August 1, 2011
We provide evidence that the research of equity analysts affiliated with corporate lenders reflects private information obtained through the commercial lending relationships. Lender-affiliated analysts improve the accuracy of their earnings forecasts on borrowers after a lending relationship is established, and publish more accurate research prior to adverse credit-related events. Lender-affiliated analysts’ accuracy gains increase in their geographic proximity to the lending activity. Furthermore, we find evidence that analysts induce a positive recommendation bias to help secure the lending business. Lending-related informational advantages persist beyond Regulation FD and the Global Settlement, but the strategic use of bias ends with these regulations.
Number of Pages in PDF File: 61
Date posted: December 24, 2009 ; Last revised: August 16, 2011
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