Lending relationships and analysts’ forecasts

Ozgur Ergungor (), Leonardo Madureira, Nandkumar Nayar and Ajai K. Singh

Journal of Financial Intermediation, 2015, vol. 24, issue 1, 71-88

Abstract: We examine earnings forecasts by sell-side analysts employed by a bank with a lending relationship with the covered firms. We find that lender-affiliated analysts’ forecasts are more accurate than forecasts by their unaffiliated peers after establishment of the lending relationship. Evidence from exogenous variation suggests that the relationship is causal. Lender-affiliated analysts are also more likely to issue pessimistic forecasts below their peers’ consensus. These forecasts are likely to be followed by below-consensus earnings. The results suggest that lender-affiliated analysts enjoy an informational advantage that spills over from lending activities of banks.

Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:24:y:2015:i:1:p:71-88

DOI: 10.1016/j.jfi.2014.02.001

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