An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Naomi S. Soderstrom
University of Colorado at Boulder

Boochun Jung
University of Colorado At Boulder

Konduru Sivaramakrishnan
University of Houston

Abstract: Both bond rating agencies and equity analysts evaluate public companies and report their findings and opinions to market participants. Regulation Fair Disclosure (FD) changed the dynamics of the market and placed restrictions on the information that companies could disclose to analysts. Debt rating agencies did not receive similar restrictions. This paper analyzes how the relation between changes in debt ratings and revisions in analyst forecasts changed as a result of FD. We find that following FD, analysts place a greater weight on information from bond rating agencies. We also find some support for the conjecture that informational effects of FD on analyst’s responses to bond downgrades are stronger for firms where the analysts have high information uncertainty (larger forecast dispersion and low analyst following).

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