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Analyst forecast characteristics and the cost of debt

Author

Listed:
  • Sattar A. Mansi

    (Virginia Tech)

  • William F. Maxwell

    (Southern Methodist University)

  • Darius P. Miller

    (Southern Methodist University)

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.

Suggested Citation

  • Sattar A. Mansi & William F. Maxwell & Darius P. Miller, 2011. "Analyst forecast characteristics and the cost of debt," Review of Accounting Studies, Springer, vol. 16(1), pages 116-142, March.
    • Handle: RePEc:spr:reaccs:v:16:y:2011:i:1:d:10.1007_s11142-010-9127-2
    DOI: 10.1007/s11142-010-9127-2
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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