The Informational Role of Bond Analysts
Journal of Accounting Research, Forthcoming
55 Pages Posted: 20 Mar 2008 Last revised: 13 Jul 2009
Date Written: July 5, 2009
This study uses a large sample of sell-side bond analysts’ reports to examine the properties of recommendations provided by bond analysts and the impact of these recommendations on bond securities. First, we document that the distribution of bond analysts’ buy, hold, and sell recommendations is skewed positively, but less so than the distribution of equity analysts’ recommendations. The positive skewness in bond analysts’ recommendations is greater for low than for high credit quality bonds. Second, we find that bond analysts’ reports generate bond trading and return reactions that are both economically significant and greater for low credit quality bonds. The bond market reaction is greater for bond analysts’ reports than for equity analysts’ reports. Finally, while both bond and equity analysts lead rating agency announcements, we find no evidence of a difference in timeliness between bond and equity analysts’ reports. Overall, our results are consistent with bond analysts issuing more negative reports than equity analysts and providing more information about low credit quality bonds as a result of the asymmetric demand for negative information by bond investors.
Keywords: bond analysts reports, bond analysts recommendations, bond market reactions
JEL Classification: G29, G33, G12
Suggested Citation: Suggested Citation