Analyst Consensus Revisions and Credit Rating Actions

1 Pages Posted: 20 Dec 2010

See all articles by Li Yao

Li Yao

Concordia University, Quebec

Date Written: October 18, 2010


I study the association between revisions in analysts’ consensus earnings forecasts and credit rating actions. Controlling for other information in the market, downwardly (upwardly) revised analyst consensus is associated with a higher likelihood of credit rating downgrades (upgrades) relative to rating affirmations; this association robustly exists in firms whose ex ante credit ratings are investment-grade. Rating actions are at best weakly associated, economically and statistically, with subsequent revisions in analyst consensus. The incremental relevance of analyst consensus revisions with respect to rating actions increases, especially in the case of impending rating downgrades, when firms voluntarily facilitate a more transparent information environment. Intertemporal test evidence casts doubt on the view that credit rating agencies possess an information advantage after Reg FD, but this evidence provides some support to the argument that in recent years, credit rating agencies may have improved their credit analyses.

Suggested Citation

Yao, Li, Analyst Consensus Revisions and Credit Rating Actions (October 18, 2010). CAAA Annual Conference 2011. Available at SSRN: or

Li Yao (Contact Author)

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB

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