Bond Analysts' Forecasts on Cash Flows and Earnings

• In Event: Earnings, Analyst and Disclosures

Abstract

We examine the propensity and properties of bond analysts’ forecasts on cash flows and earnings. We find that the probability to issue cash flow, relative to earnings, forecasts is greater for bond analysts than for equity analysts, consistent with the notion that cash flow, relative to earnings, information is more important to bond investors than for stock investors. Further, we find that bond analysts are less optimistic in their forecasts than equity analysts, implying that their forecasts reflect bond investors’ asymmetric demand for good news and bad news. Finally, bond analysts’ cash flow (earnings) forecasts are more (less) accurate than equity analysts’ cash flow (earnings) forecasts, which manifests bond investors’ stronger demand for reliable information on future cash flows than for earnings. Overall, this study enhances our understanding of bond analysts’ informational role through their forecasting activities.

Authors

• Robert Kim, University of Massachusetts Boston

• William Joseph Kross, SUNY-Buffalo

• Inho Suk, SUNY-Buffalo