The Effects of Analyst Forecast Properties on the Cost of Debt: International Evidence

Abstract

The views expressed in papers published in our series are those of the author(s) and do not necessarily represent those of any department at SBM, the SBM itself, the American University of Sharjah (AUS) and/or any of their affiliates. Additionally, all papers in the series are made available on an "as is" basis without warranties of any kind. We, that is, the relevant department at SBM, SBM, AUS and/or any of the affiliates, hereby expressly disclaim any warranties of any kind, whether expressed or implied, including without limitation, the warranties of noninfringement, merchantability, and fitness for a particular purpose. Furthermore, we offer no warranties, expressed or implied, regarding the accuracy, sufficiency or suitability of the material found in the published papers. The users have the sole responsibility for inspecting and testing all content to their satisfaction before using them. AbstractThis study investigates whether financial analysts play a governance role in international debt markets by examining the link between analyst forecast characteristics and the cost of debt financing. Using a sample of 2,686 bond issues from 35 non-U.S. countries, we find statistically and economically significant evidence that analyst activities lower bond yield spreads, after controlling for bond-and firm-level control variables as well as various country-level institutional factors. We also find that this relation holds in countries with weak and strong governance institutions, although the effects appear to be economically more important in the former. Overall, our non-U.S. findings extend the U.S. evidence in Mansi et al. (2011) that financial analysts play an important governance role as information intermediaries between firms and market participants. December 2013JEL classification: G34; G32