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Bond Rating Agencies and Stock Analysts: Who Knows What When?

Published online by Cambridge University Press:  06 April 2009

Louis H. Ederington  and
Jeremy C. Goh
Louis H. Ederington
Affiliation:
Finance Division, Michael F. Price College of Business, University of Oklahoma, Norman, OK 73019
Jeremy C. Goh
Affiliation:
Finance Department, College of Business, Drexel University, Philadelphia, PA 19104
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Abstract

Both bond rating agencies and stock analysts evaluate publicly traded companies and communicate their opinions to investors. Comparing the timeliness of each, we find that Granger causality flows both ways. While most bond downgrades are preceded by declines in actual and forecast earnings, both actual earnings and forecasts of future earnings tend to fall following downgrades. Although part of this post-downgrade forecast revision can be attributed to negative news regarding actual earnings, most appears to be reaction to the downgrade itself. We find little change in actual earnings following upgrades. Analysts, however, tend to increase their forecasts of future earnings.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 33 , Issue 4 , December 1998 , pp. 569 - 585
Copyright
Copyright © School of Business Administration, University of Washington 1998

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