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http://ssrn.com/abstract=699702
 
 

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Analyst Forecast Characteristics and the Cost of Debt


Sattar Mansi


Virginia Polytechnic Institute & State University

William F. Maxwell


SMU - Cox School

Darius P. Miller


Southern Methodist University (SMU) - Edwin L. Cox School of Business

October 1, 2009


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 (i.e., those with high idiosyncratic risk). Our results are robust to controls for the amount of private information in equity prices and the level of corporate disclosures. Overall, our 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.

Number of Pages in PDF File: 46

Keywords: Analyst, Information asymmetry, information risk, cost of capital, debt markets, bond markets

JEL Classification: G10, G12, G29, G32, J33

working papers series


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Date posted: April 19, 2005 ; Last revised: October 25, 2009

Suggested Citation

Mansi, Sattar and Maxwell, William F. and Miller, Darius P., Analyst Forecast Characteristics and the Cost of Debt (October 1, 2009). Available at SSRN: http://ssrn.com/abstract=699702 or http://dx.doi.org/10.2139/ssrn.699702

Contact Information

Sattar Mansi
Virginia Polytechnic Institute & State University ( email )
William F. Maxwell (Contact Author)
SMU - Cox School ( email )
Maguire Bldg, RM 440C
Dallas, TX, TX 75214
United States
Darius P. Miller
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
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