Analyst following and credit ratings

Cheng Mei, K. R. Subramanyam

Research output: Contribution to journalArticlepeer-review

100 Scopus citations


This paper examines the relation between financial (equity) analyst following and default risk, which we proxy by issuer credit ratings. We hypothesize that analyst following reduces default risk because of both the monitoring and the informational roles of financial analysts. Using a large sample of firms, we find evidence consistent with this conjecture. In particular, we find that analyst following is negatively related to a firm's default risk (credit rating). The effect of analyst following on credit ratings is less pronounced for firms with a superior information environment and stronger controls. Similarly, the effect of analyst following on a firm's credit rating is lower when analysts' information quality is poor. Our results are robust to controlling for several factors including the endogenous relation between credit ratings, institutional holdings, and analyst following. Our study documents important spillover effects of financial (equity) analysts to the debt market.

Original languageEnglish (US)
Pages (from-to)1007-1044
Number of pages38
JournalContemporary Accounting Research
Issue number4
StatePublished - 2008


  • Analyst following
  • Cost of debt
  • Credit rating
  • Default risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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