Sunder, Shyam V.
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PublisherThe University of Arizona.
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AbstractI examine the impact of the presence and characteristics of equity analysts' cash flow forecasts on cost of debt. I find the presence of cash flow forecasts is associated with a lower cost of debt relative to firm-years with only earnings estimates or neither estimate. I also find cash flow forecast characteristics are associated with cost of debt after controlling for other known determinants of yield spreads. Additional analyses decomposing earnings forecast characteristics into cash flow and accruals components find the cash flow component is associated with cost of debt, but the accruals component is not. Overall, the results indicate that debt market participants find cash flow forecasts useful in reducing information asymmetry and/or providing monitoring, as well as being useful in providing information regarding expected default risk in determining expected returns.
Degree ProgramGraduate College