Analyst following and credit ratings

Mei - Cheng, K. R. Subramanyam

Research output: Contribution to journalArticle

48 Citations (Scopus)

Abstract

This paper examines the relation between financial (equity) analyst following and default risk, which we proxy by issuer credit ratings. We hypothesize that analyst following reduces default risk because of both the monitoring and the informational roles of financial analysts. Using a large sample of firms, we find evidence consistent with this conjecture. In particular, we find that analyst following is negatively related to a firm's default risk (credit rating). The effect of analyst following on credit ratings is less pronounced for firms with a superior information environment and stronger controls. Similarly, the effect of analyst following on a firm's credit rating is lower when analysts' information quality is poor. Our results are robust to controlling for several factors including the endogenous relation between credit ratings, institutional holdings, and analyst following. Our study documents important spillover effects of financial (equity) analysts to the debt market.

Original languageEnglish (US)
JournalContemporary Accounting Research
Volume25
Issue number4
DOIs
StatePublished - Dec 2008

Fingerprint

Credit rating
Analyst following
Default risk
Equity
Analysts
Financial analysts
Information quality
Factors
Monitoring
Information environment
Spillover effects
Debt

Keywords

  • Analyst following
  • Cost of debt
  • Credit rating
  • Default risk

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Analyst following and credit ratings. / Cheng, Mei -; Subramanyam, K. R.

In: Contemporary Accounting Research, Vol. 25, No. 4, 12.2008.

Research output: Contribution to journalArticle

Cheng, Mei - ; Subramanyam, K. R. / Analyst following and credit ratings. In: Contemporary Accounting Research. 2008 ; Vol. 25, No. 4.
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