Firm Credit Ratings and Financial Analyst Forecast Performance
Nathan H. Jeppson, Mathew C. Geiszler, David F. Salerno
This study examines the relationship between firms’ credit ratings and financial analyst earnings forecast performance. We hypothesize and find that high firm credit ratings, which represent low task complexity and low solvency risk, are associated with less dispersion and more accurate earnings forecasts, while low credit ratings are associated with more dispersion and less forecast accuracy. The results of this study are useful to market participants by revealing the increased (decreased) value of information contained in financial analysts’ forecasts when firms have received high (low) credit ratings.