Analyst Forecast Characteristics and the Cost of Debt

46 Pages Posted: 19 Apr 2005 Last revised: 25 Oct 2009

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: October 1, 2009

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, Information asymmetry, information risk, cost of capital, debt markets, bond markets

JEL Classification: G10, G12, G29, G32, J33

Suggested Citation

Mansi, Sattar and Maxwell, William F. and Miller, Darius P., Analyst Forecast Characteristics and the Cost of Debt (October 1, 2009). Available at SSRN: https://ssrn.com/abstract=699702 or http://dx.doi.org/10.2139/ssrn.699702

Sattar Mansi

Virginia Polytechnic Institute & State University ( email )

William F. Maxwell (Contact Author)

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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