Does In-House Debt Research Shape Equity Research?

48 Pages Posted: 20 Oct 2016 Last revised: 21 Jun 2019

See all articles by Artur Hugon

Artur Hugon

Arizona State University (ASU)

An-Ping Lin

Singapore Management University - School of Accountancy

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: June 20, 2019

Abstract

Debt research places greater importance on cash flow analysis and credit rating prediction than does equity research and is only available to equity analysts employed by the same broker. We show that equity analysts with access to high quality debt research issue cash flow forecasts for financially distressed firms with higher frequency, accuracy, and price impact. In addition, these analysts are more likely to revise down their earnings forecasts, cash flow forecasts, and stock recommendations in the 90-day period leading to a credit rating downgrade; furthermore, these revisions are both larger and timelier than revisions by other analysts. We conclude that in-house debt research improves an equity analyst’s ability to forecast cash flows and anticipate credit rating downgrades due to information sharing or orienting the equity analyst’s attention to these forecasting tasks.

Keywords: Equity Analysts, Debt Analysts, Cash Flow Forecasts

JEL Classification: D53, G12, G14, G24

Suggested Citation

Hugon, Artur and Lin, An-Ping and Markov, Stanimir, Does In-House Debt Research Shape Equity Research? (June 20, 2019). Singapore Management University School of Accountancy Research Paper No. 2016-53. Available at SSRN: https://ssrn.com/abstract=2854519 or http://dx.doi.org/10.2139/ssrn.2854519

Artur Hugon (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

An-Ping Lin

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

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