Equity analysts' recommendation revisions and corporate bond price reactions

Date

2021

Authors

Wei, Xiaoting
Do, Viet

Journal Title

Journal ISSN

Volume Title

Publisher

Blackwell Publishing Ltd

Abstract

This paper analyzes bond price reactions to examine the information spillover from equity analysts' recommendation revisions into the bond market. We document a positive relation between bond price reactions and recommendation revisions. On average, bond prices react positively to recommendation upgrades and negatively to recommendation downgrades. The strongest reactions are observed among speculative-grade bonds. While, on average, bond price movements are in the same direction as analysts' recommendation revisions, these revisions can also lead to bond price reactions in the opposite direction to share price reactions. We find evidence of negative bond return reactions relative to share price reactions among firms that are closer to distress, especially when they have high levels of institutional ownership or discretionary accruals. The negative relative price reaction between shares and bonds indicates that equity analyst recommendations sometimes carry security-specific information.

Description

Keywords

analyst recommendation revision, corporatebond, security specific information

Citation

Source

International Review of Finance

Type

Journal article

Book Title

Entity type

Access Statement

License Rights

DOI

10.1111/irfi.12364

Restricted until

2099-12-31