Journal of Financial Intermediation Vol. 24 No. 1 2015

Lending relationships and analysts’ forecasts

Ozgur E. Ergungor¹; Leonardo Madureira²; Nandkumar Nayar³; Ajai K. Singh³

¹ Federal Reserve Bank of Cleveland · ² Case Western Reserve University · ³ Lehigh University

Abstract

We examine earnings forecasts by sell-side analysts employed by a bank with a lending relationship with the covered firms. We find that lender-affiliated analysts’ forecasts are more accurate than forecasts by their unaffiliated peers after establishment of the lending relationship. Evidence from exogenous variation suggests that the relationship is causal. Lender-affiliated analysts are also more likely to issue pessimistic forecasts below their peers’ consensus. These forecasts are likely to be followed by below-consensus earnings. The results suggest that lender-affiliated analysts enjoy an informational advantage that spills over from lending activities of banks.

DOI

10.1016/j.jfi.2014.02.001

Volume

24

Issue

1

Pages

71-88

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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