Economics at your fingertips  

The role of debt contracts in analyst earnings forecasts

Bishal Bc and Sharif Esfahani

Journal of Economics and Business, 2020, vol. 111, issue C

Abstract: Financial analysts evaluate a firm’s performance and provide earnings forecasts for future periods. Analysts have limited access to firm financial information, particularly following the enactment of Regulation Fair Disclosure (Reg FD) on October 23, 2000, which may result in information asymmetry between analysts and firm insiders. However, banks are exempt from the Reg FD, and they can still access private information to qualify borrowing firms for better terms on loans. Analysts may accordingly use loan contracts as a source of information to reduce information asymmetry and improve their earnings forecasts. We find that during the quarters wherein companies sign loan contracts, analysts provide more accurate earnings forecasts with lower forecast errors. More importantly, we find that analysts revise their earnings forecasts upward following the issuance of loans with low interest rates, while they revise them downward following the issuance of loans with high interest rates. Overall, these results are consistent with financial analysts using the information provided in debt contracts to better evaluate a firm’s performance and provide more precise earnings forecasts.

Keywords: Forecast revisions; Forecast errors; Debt contracts; Equity analysts (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jeconbus.2020.105929

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2021-09-15
Handle: RePEc:eee:jebusi:v:111:y:2020:i:c:s0148619519304126