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Analyst Following and Credit Ratings *
Author(s) -
Cheng Mei,
Subramanyam K. R.
Publication year - 2008
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1506/car.25.4.3
Subject(s) - library science , citation , zhàng , history , accounting , political science , computer science , law , economics , china
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.