Analyst forecast characteristics and the cost of debt

Sattar A. Mansi (), William F. Maxwell () and Darius P. Miller ()
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Sattar A. Mansi: Virginia Tech
William F. Maxwell: Southern Methodist University
Darius P. Miller: Southern Methodist University

Review of Accounting Studies, 2011, vol. 16, issue 1, No 5, 116-142

Abstract: Abstract We examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view that the information contained in analysts’ forecasts is economically significant across asset classes, we find that analyst activity reduces bond yield spreads. We also find that the economic impact of analysts is most pronounced when uncertainty about firm value is highest (that is, when firms have high idiosyncratic risk). Our findings are robust to controls for private information in equity prices and level of corporate disclosures. Overall, the results indicate that the information contained in analyst forecasts is valued outside the equity market and provide an additional channel in which better information is associated with a lower cost of capital.

Keywords: Analyst forecasts; Information; Disclosure; Cost of debt (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s11142-010-9127-2

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