Analyst Forecast Characteristics and the Cost of Debt

Posted: 7 Jan 2010

See all articles by Sattar Mansi

Sattar Mansi

Virginia Polytechnic Institute & State University

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 6, 2010

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.

Keywords: Analyst forecasts, information, disclosure, cost of debt

JEL Classification: G14, M41

Suggested Citation

Mansi, Sattar and Maxwell, William F. and Miller, Darius P., Analyst Forecast Characteristics and the Cost of Debt (January 6, 2010). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1532362

Sattar Mansi (Contact Author)

Virginia Polytechnic Institute & State University ( email )

William F. Maxwell

Southern Methodist University (SMU) - Finance Department ( email )

United States

Darius P. Miller

Southern Methodist University (SMU) - Finance Department ( email )

United States

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