When Do Stock Analysts Find Bond Rating Changes Informative?

Accounting and Business Research, Forthcoming

Posted: 30 Jan 2015

See all articles by Boochun Jung

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Shiva Sivaramakrishnan

Rice University

Naomi S. Soderstrom

University of Melbourne

Date Written: January 29, 2015

Abstract

Credit rating agencies (CRAs) have considerable privileged access to corporate management and are therefore a potentially important source of information to the equity market. We study how stock analysts incorporate bond ratings in their earnings forecasts. We develop an economic framework for why equity analysts might look to CRAs as an information source, especially after Reg. FD. Using this framework, we characterize the association between ratings changes and earnings forecast revisions surrounding these changes. We examine whether the extent to which equity analysts glean information from ratings changes is related to the extent and importance of information conveyed in the ratings change and analysts’ information uncertainty. We find that characteristics we examine are strongly related to stock analysts’ use of information in rating downgrades.

Keywords: Equity analysts, Debt rating changes, Analyst forecast revisions, Regulation Fair Disclosure

JEL Classification: M40

Suggested Citation

Jung, Boochun and Sivaramakrishnan, Shiva and Soderstrom, Naomi S., When Do Stock Analysts Find Bond Rating Changes Informative? (January 29, 2015). Accounting and Business Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2557815

Boochun Jung (Contact Author)

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Shiva Sivaramakrishnan

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Naomi S. Soderstrom

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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