The Relation Between Corporate Financing Activities, Analysts' Forecasts and Stock Returns
Mark Thomas Bradshaw
Scott A. Richardson
London Business School; AQR Capital Management, LLC
Richard G. Sloan
University of California at Berkeley - Haas School of Business
Journal of Accounting and Economics, Forthcoming
We develop a comprehensive and parsimonious measure of corporate financing activities and document a negative relation between this measure and both future stock returns and future profitability. The economic and statistical significance of the results using our comprehensive measure of external financing is stronger than in previous research focusing on individual categories of corporate financing activities. To discriminate between risk versus misvaluation as explanations for this relation, we analyze the association between our measure of external financing and sell-side analysts' forecasts. Consistent with the misvaluation explanation, we find that our measure of external financing is positively related to overoptimism in sell-side analysts' forecasts.
Number of Pages in PDF File: 59
Keywords: Financing, Sell-side analysts, Capital markets, Market efficiency
JEL Classification: G10, M14, G29, G32, M41Accepted Paper Series
Date posted: May 25, 2006
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