nach oben

Review of Accounting Studies

Erschienen in:

01.03.2011

Analyst forecast characteristics and the cost of debt

verfasst von: Sattar A. Mansi, William F. Maxwell, Darius P. Miller

Erschienen in: Review of Accounting Studies | Ausgabe 1/2011

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

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.

Vorheriger Artikel Can financial statement analysis beat consensus analysts’ recommendations?

Nächster Artikel Do management EPS forecasts allow returns to reflect future earnings? Implications for the continuation of management’s quarterly earnings guidance

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Campello et al. (2008) argue that bond yields can also be used to construct ex ante equity risk premiums.

There are two approaches to corporate bond pricing: structural and reduced form models. The structural models (e.g., Merton 1974) provide a theoretical construct for pricing corporate bonds but often produce outputs that underestimate observed default spreads. In contrast, the reduced form models allow for illiquidity and systematic credit risk to be priced and tend to fit the observed default premia better than structural models (Campbell and Taksler 2003). Our empirical models control for factors that proxy for the underlying factors that drive the pricing in either the structural or reduced form models.

The theoretical motivation for these studies is generally taken from models of estimation risk (Barry and Brown 1985; Coles et al. 1995) and incomplete information (Merton 1987). More general evidence on disclosure and the cost of capital exists using microstructure data (Welker 1995; Leuz and Verrechia 2000; Easley et al. 2002; Botosan et al. 2004).

Bushman et al. (2004) argue that analysts’ information production results from investor demand.

Gu and Wu (2003) have found that using the median forecast consensus rather than the mean provides the most accurate forecast.

Though not reported, we also estimate the basic models using the month of fiscal year-end and find similar results.

The underlying assumption in the regression models is that there are uniform differences between the ordinal credit ratings. To ensure this assumption is not driving our results, we also estimate credit ratings using ordered probit models, which captures the information in the ordering of the ordinal variable (rating) but does not impose a uniform relation among the ratings categories. Though not reported, we find similar results to the reported OLS results.

Francis et al. (2008) also provide data on one additional disclosure variable, the firm-initiated press releases. However, due to the high correlation between that variable and the already collected conference calls activity (about 50%), we do not report the results for the firm-initiated press releases variable.

Our finding that AIMR scores are insignificant differs from Yu (2005). However, we use a different sampling method. We sample once a year to coincide with our financial controls rather than monthly, which induces serial correlation in the AIMR variable, which does not change on a monthly basis. We also include additional information control variables and apply stricter econometric estimation techniques.

Ashbaugh-Skaife, H., Collins, D., & LaFond, R. (2006). The effects of corporate governance on firm credit ratings. Journal of Accounting and Economics, 42, 203–243.CrossRef

Barry, C., & Brown, S. (1985). Differential information and security market equilibrium. Journal of Financial and Quantitative Analysis, 20, 407–422.CrossRef

Barth, M., & Hutton, A. (2000). Analysts earning forecasts revisions and the pricing of accruals. Review of Accounting Studies, 9, 59–96.CrossRef

Bernhardt, D., Campello, M., & Kutsoati, E. (2006). Who herds? Journal of Financial Economics, 90, 657–675.CrossRef

Bessembinder, H., Kahle, K., Maxwell, W., & Xu, D. (2009). Measuring abnormal bond returns. Review of Financial Studies, 22, 4219–4258.CrossRef

Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. Journal of Business, 76, 455–475.CrossRef

Boehme, R., Danielsen, B., Kumar, P., & Sorescu, S. (2009). Idiosyncratic risk and the cross-section of stock returns: Merton (1987) Meets Miller (1977). Journal of Financial Markets, 12, 438–468.CrossRef

Botosan, C. (1997). Disclosure level and the cost of equity capital. Accounting Review, 72, 323–349.

Botosan, C., & Plumlee, M. (2002). A reexamination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40, 21–40.CrossRef

Botosan, C., Plumlee, M., & Xie, Y. (2004). The role of information precision in determining the cost of equity capital. Review of Accounting Studies, 9, 233–259.CrossRef

Brennan, M., Jagadeesh, N., & Swaminathan, B. (1993). Investment analysis and the adjustment of stock prices to common information. Review of Financial Studies, 6, 799–824.CrossRef

Bushman, R., Pitorski, E., & Smith, A. (2004). What determines corporate transparency? Journal of Accounting Research, 42, 207–252.CrossRef

Campbell, J., & Taksler, G. (2003). Equity volatility and corporate bond yields. Journal of Finance, 58, 2321–2349.CrossRef

Campello, M., Chen, L., & Zhang, L. (2008). Expected return, yield spreads, and asset pricing tests. Review of Financial Studies, 21, 1297–1338.CrossRef

Cheng, M., & Subramanyam, K. (2008). Analyst following and credit ratings. Contemporary Accounting Research, 25, 1007–1044.CrossRef

Clarke, J., & Subramanian, A. (2006). Dynamic forecasting behavior by analysts: Theory and evidence. Journal of Financial Economics, 80, 81–113.CrossRef

Clement, M. B. (1999). Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter? Journal of Accounting and Economics, 27, 285–303.CrossRef

Coles, J., Loewenstein, U., & Suay, J. (1995). On equilibrium pricing under parameter uncertainty. Journal of Financial and Quantitative Analysis, 30, 347–364.CrossRef

Core, J., Holthausen, R., & Larcker, D. (1999). Corporate governance, chief executive office, and firm performance. Journal of Financial Economics, 51, 371–406.CrossRef

DeFond, M., & Hung, M. (2007). Investor protection and analysts’ cash flow forecasts around the world. Review of Accounting Studies, 12, 377–419.CrossRef

DeFusco, R., Johnson, R., & Zorn, T. (1990). The effect of executive stock option plans on stockholders and bondholders. Journal of Finance, 45, 617–627.CrossRef

Dichev, L., & Piotroski, J. (2001). The long-run stock returns following bond ratings changes. Journal of Finance, 56, 173–203.CrossRef

Duffie, D., & Lando, D. (2001). Term structures of credit spreads with incomplete accounting information. Econometrica, 69, 633–664.CrossRef

Easley, D., Hvidkjaer, S., & O’Hara, M. (2002). Is information risk a determinant of asset returns? Journal of Finance, 57, 2185–2221.CrossRef

Edwards, A., Harris, L., & Piwowar, M. (2007). Corporate bond market transparency and transactions costs. Journal of Finance, 62, 1421–1451.CrossRef

Fama, E., & MacBeth, J. (1973). Risk, return, and equilibrium: Empirical tests. Journal of Political Economy, 81, 67–105.

Fons, J. (1994). Using default rates to model the term structure of credit risk. Financial Analyst Journal, 50, 25–32.CrossRef

Francis, J., Nanda, D., & Olsson, P. (2008). Voluntary disclosure, earnings quality, and cost of capital. Journal of Accounting Research, 46, 53–99.CrossRef

Francis, J., & Soffer, L. (1997). The relative informativeness of analysts’ stock recommendations and earnings forecast revisions. Journal of Accounting Research, 35, 193–211.CrossRef

Gebhardt, W., Lee, C., & Swaminatharn, B. (2001). Toward an implied cost of capital. Journal of Accounting Research, 39, 135–176.CrossRef

Givoly, D., & Lakonishok, J. (1979). The information content of financial analysts’ forecasts of earnings: Some evidence on semi-strong efficiency. Journal of Accounting and Economics, 1, 165–185.CrossRef

Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118, 107–155.CrossRef

Gu, Z., & Wu, J. (2003). Earnings skewness and analyst forecast bias. Journal of Accounting and Economics, 35, 5–29.CrossRef

Hite, G., & Warga, A. (1997). The effect of bond-rating changes on bond price performance. Financial Analysts Journal, 53, 35–51.CrossRef

Hong, H., Lim, T., & Stein, J. (2000). Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies. Journal of Finance, 55, 265–295.CrossRef

Jacobs, J., Lys, T., & Neale, M. (1999). Expertise in forecasting performance of security analysts. Journal of Accounting and Economics, 28, 51–82.CrossRef

Klock, M., Mansi, S., & Maxwell, W. (2005). Does corporate governance matter to bondholders? Journal of Financial and Quantitative Analysis, 40, 693–719.CrossRef

Knyazeva, D. (2008). Corporate governance, analyst following, and firm behavior. Working paper at University of Rochester.

Lang, M., Lins, K., & Miller, D. (2004). Concentrated control, analyst following, and valuation: Do analysts matter most when investors are protected least? Journal of Accounting Research, 42, 589–623.CrossRef

Lang, M., & Lundholm, R. (1996). Corporate disclosure policy and analyst behavior. Accounting Review, 71, 467–492.

Leuz, C., & Verrechia, R. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38(Supplement), 91–124.CrossRef

Lys, T., & Sohn, S. (1990). The association between revisions of financial analysts’ earnings forecasts and security-price changes. Journal of Accounting and Economics, 13, 341–363.CrossRef

Mansi, S., Maxwell, W., & Miller, D. (2004). Does auditor quality and tenure matter to investors: Evidence from the bond market. Journal of Accounting Research, 42, 755–793.CrossRef

Mansi, S., Maxwell, W., & Wald, J. (2009). Creditor protection laws and the cost of debt. Journal of Law and Economics, 52, 701–726.CrossRef

Merton, R. (1974). On the pricing of corporate debt: The risk structure of interest rates. Journal of Finance, 29, 449–470.CrossRef

Merton, R. (1987). A simple model of capital market equilibrium with incomplete information. Journal of Finance, 42, 483–510.CrossRef

O’Brien, P., & Bhushan, R. (1990). Analyst following and institutional ownership. Journal of Accounting Research, 28, 55–76.CrossRef

O’Brien, P., McNicholes, M., & Lin, H. (2005). Analyst impartiality and investment banking relationships. Journal of Accounting Research, 43, 623–650.CrossRef

Odders-White, E., & Ready, M. (2006). Credit ratings and stock liquidity. Review of Financial Studies, 19, 119–157.CrossRef

Ortiz-Molina, H. (2006). Top-management incentives and the pricing of corporate public debt. Journal of Financial and Quantitative Analysis, 41, 317–340.CrossRef

Petersen, M. (2009). Estimating standard errors in finance panel datasets: Comparing approaches. Review of Financial Studies, 22, 435–480.CrossRef

Piostroski, J., & Roulstone, D. (2004). Do insider trades reflect both contrarian beliefs and superior knowledge about future cash flow realizations? Journal of Accounting and Economics, 39, 55–81.CrossRef

Ramnath, S. (2002). Investor and analyst reactions to earnings announcements of related firms: An empirical analysis. Journal of Accounting Research, 40, 1351–1376.CrossRef

Sengupta, P. (1998). Corporate disclosure quality and the cost of debt. Accounting Review, 73, 459–474.

Welker, M. (1995). Disclosure policy, information asymmetry, and liquidity in equity markets. Contemporary Accounting Research, 11, 810–827.CrossRef

Yu, F. (2005). Accounting transparency and the term structure of credit spreads. Journal of Financial Economics, 75, 53–84.CrossRef

Titel: Analyst forecast characteristics and the cost of debt
verfasst von: Sattar A. Mansi
William F. Maxwell
Darius P. Miller
Publikationsdatum: 01.03.2011
Verlag: Springer US
Erschienen in: Review of Accounting Studies / Ausgabe 1/2011
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI: https://doi.org/10.1007/s11142-010-9127-2

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 1/2011

Analysts’ accrual-related over-optimism: do analyst characteristics play a role?

Do management EPS forecasts allow returns to reflect future earnings? Implications for the continuation of management’s quarterly earnings guidance

Do acquirers disclose good news or withhold bad news when they finance their acquisitions using equity?

Analyst reputation and the issuance of disaggregated earnings forecasts to I/B/E/S

Can financial statement analysis beat consensus analysts’ recommendations?

What do dividends tell us about earnings quality?