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

Abstract

This 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.