Do Equity Analysts Benefit from Access to High Quality Debt Research?
We examine the role of debt analysts as an in-house resource for equity analysts. We suggest that the availability of debt research facilitates the equity analyst’s task of forecasting cash flows, especially for financially distressed firms. Consistent with this reasoning, we find greater incidence, accuracy, and price impact of cash flow forecasts by equity analysts who have access to high quality debt research and follow financially distressed companies, controlling for familiar measures of equity analyst resources and skill. In placebo tests, we find no evidence that these equity analysts issue superior revenue or earnings forecasts, further precluding the alternative explanation that they are more capable or have more resources, in general. Our results illustrate how research expertise in one area can provide a competitive advantage in another area.
Equity Analysts, Debt Analysts, Cash Flow Forecasts
SMU Cox: Accounting (Topic)