The Relation Between Corporate Financing Activities, Analysts' Forecasts and Stock Returns

59 Pages Posted: 25 May 2006  

Mark T Bradshaw

Boston College

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Richard G. Sloan

University of California, Berkeley - Accounting Group

Abstract

We develop a comprehensive and parsimonious measure of corporate financing activities and document a negative relation between this measure and both future stock returns and future profitability. The economic and statistical significance of the results using our comprehensive measure of external financing is stronger than in previous research focusing on individual categories of corporate financing activities. To discriminate between risk versus misvaluation as explanations for this relation, we analyze the association between our measure of external financing and sell-side analysts' forecasts. Consistent with the misvaluation explanation, we find that our measure of external financing is positively related to overoptimism in sell-side analysts' forecasts.

Keywords: Financing, Sell-side analysts, Capital markets, Market efficiency

JEL Classification: G10, M14, G29, G32, M41

Suggested Citation

Bradshaw, Mark T and Richardson, Scott A. and Sloan, Richard G., The Relation Between Corporate Financing Activities, Analysts' Forecasts and Stock Returns. Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=904226

Mark T Bradshaw

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Richard G. Sloan (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

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