Abstract

http://ssrn.com/abstract=2038896
 
 

References (30)



 


 



Information Asymmetry, the Cost of Debt, and Credit Events: Evidence from Quasi-Random Analyst Disappearances


François Derrien


HEC Paris - Finance Department

Ambrus Kecskes


York University - Schulich School of Business

Sattar Mansi


Virginia Tech

April 24, 2015


Abstract:     
We hypothesize that greater information asymmetry causes greater losses to debtholders. To test this, we identify exogenous increases in information asymmetry using the loss of an analyst that results from broker closures and broker mergers. We find that the loss of an analyst causes the cost of debt to increase by 25 basis points for treatment firms compared to control firms, and the rate of credit events (e.g., defaults) is roughly 100-150% higher. These results are driven by firms that are more sensitive to changes in information (e.g., less analyst coverage). The evidence is broadly consistent with both a financing and monitoring channels, although only a financing channel explains the impact of the loss of an analyst on firms' cost of debt.

Number of Pages in PDF File: 51

Keywords: Information asymmetry; Cost of debt; Default; Bankruptcy; Natural experiment; Matching estimators; Difference-in-differences; Equity research analysts; Creditors

JEL Classification: D80, G12, G24, G33


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Date posted: April 12, 2012 ; Last revised: April 25, 2015

Suggested Citation

Derrien, François and Kecskes, Ambrus and Mansi, Sattar, Information Asymmetry, the Cost of Debt, and Credit Events: Evidence from Quasi-Random Analyst Disappearances (April 24, 2015). Available at SSRN: http://ssrn.com/abstract=2038896 or http://dx.doi.org/10.2139/ssrn.2038896

Contact Information

François Derrien (Contact Author)
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)
HOME PAGE: http://www.hec.fr/derrien

Ambrus Kecskes
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Sattar Mansi
Virginia Tech ( email )
Feedback to SSRN


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