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Lending relationships and analysts’ forecasts

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  • Ergungor, Ozgur E.
  • Madureira, Leonardo
  • Nayar, Nandkumar
  • Singh, Ajai K.

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.

Suggested Citation

  • Ergungor, Ozgur E. & Madureira, Leonardo & Nayar, Nandkumar & Singh, Ajai K., 2015. "Lending relationships and analysts’ forecasts," Journal of Financial Intermediation, Elsevier, vol. 24(1), pages 71-88.
    • Handle: RePEc:eee:jfinin:v:24:y:2015:i:1:p:71-88
    DOI: 10.1016/j.jfi.2014.02.001
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