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
Date Written: October 2007
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
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