Lending Relationships and Analysts’ Forecasts

Posted: 16 Feb 2014 Last revised: 7 Mar 2019

See all articles by O. Emre Ergungor

O. Emre Ergungor

affiliation not provided to SSRN

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management

Nandkumar (Nandu) Nayar

Lehigh University - College of Business

Ajai K. Singh

Department of Finance, University of Central Florida

Date Written: February 15, 2014

Abstract

We examine earnings forecasts by sell-side analysts employed by a bank with a lending relationship with the covered firms. We find that lender-affiliated analysts’ forecasts are more accurate than forecasts by their unaffiliated peers after establishment of the lending relationship. Evidence from exogenous variation suggests that the relationship is causal. Lender-affiliated analysts are also more likely to issue pessimistic forecasts below their peers’ consensus. These forecasts are likely to be followed by below-consensus earnings. The results suggest that lender-affiliated analysts enjoy an informational advantage that spills over from lending activities of banks.

Keywords: Lending Relationships, Analysts' Forecasts

JEL Classification: G10, G21

Suggested Citation

Ergungor, Ozgur Emre and Madureira, Leonardo and Nayar, Nandkumar (Nandu) and Singh, Ajai K., Lending Relationships and Analysts’ Forecasts (February 15, 2014). Journal of Financial Intermediation, vol. 24, issue 1, pp. 71-88, 2015. Available at SSRN: https://ssrn.com/abstract=2396641

Ozgur Emre Ergungor

affiliation not provided to SSRN

Leonardo Madureira (Contact Author)

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States
216-368-5003 (Phone)

HOME PAGE: http://faculty.weatherhead.case.edu/madureira/

Nandkumar (Nandu) Nayar

Lehigh University - College of Business

Bethlehem, PA 18015
United States

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

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