Analyst Forecast Characteristics and the Cost of Debt
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
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
Date posted: April 19, 2005 ; Last revised: October 25, 2009
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