Journal article

When do stock analysts find bond rating changes informative?

Boochun Jung, Konduru Sivaramakrishnan, Naomi Soderstrom

Accounting and Business Research | ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD | Published : 2016

Abstract

Credit rating agencies (CRAs) have considerable privileged access to corporate management and are therefore a potentially important source of information to the equity market. We study how stock analysts incorporate bond ratings in their earnings forecasts. We develop an economic framework to explain why equity analysts might look to CRAs as an information source, especially after Regulation Fair Disclosure. Using this framework, we characterize the association between ratings changes and earnings forecast revisions surrounding these changes. We examine whether the extent to which equity analysts glean information from ratings changes is related to the extent and importance of information co..

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University of Melbourne Researchers