Informational Effects of Regulation Fair Disclosure on Equity Analysts' Responses to Debt Rating Changes

42 Pages Posted: 13 Jun 2006 Last revised: 10 Sep 2009

See all articles by Naomi S. Soderstrom

Naomi S. Soderstrom

University of Melbourne

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Shiva Sivaramakrishnan

Rice University

Date Written: October 2007

Abstract

Both bond rating agencies and equity analysts evaluate public companies and report their findings and opinions to market participants. Regulation Fair Disclosure (FD) changed the dynamics of the market and placed restrictions on the information that companies could disclose to analysts. Debt rating agencies were not subject to similar restrictions. This paper analyzes how FD impacted the relation between changes in debt ratings and revisions in analyst forecasts. We find that following FD, analysts appear to place greater weight on information from bond rating agencies. We also find some support for the conjecture that informational effects of FD on analyst's responses to bond downgrades are stronger for firms where the analysts have high information uncertainty (larger forecast dispersion and lower analyst following).

Keywords: accounting, analyst forecasts, debt rating, regulation FD

JEL Classification: G29, G38, G33, M41, M45

Suggested Citation

Soderstrom, Naomi S. and Jung, Boochun and Sivaramakrishnan, Shiva, Informational Effects of Regulation Fair Disclosure on Equity Analysts' Responses to Debt Rating Changes (October 2007). Available at SSRN: https://ssrn.com/abstract=907487 or http://dx.doi.org/10.2139/ssrn.907487

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

Boochun Jung

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

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