Friday, March 31, 4:00 p.m. to 5:40 p.m.
Concurrent session 4E - Multinational Issues (International Accounting)
Title: Bank Relations and Security Analyst Forecasts among Japanese Firms
University of Illinois at Urbana-Champaign
ABSTRACT: This paper empirically compares the security analyst activities (i.e., the analyst coverage and the forecast accuracy and concentration) between firms that have close working relations with banks and firms without such bank ties. Firms with close bank relations, a key institutional feature of stakeholder governance, should have different information environments from firms without close ties. Firms with close bank relations have weaker incentives to establish bonding with capital market investors because investors can rely on the banks’ monitoring instead of their own monitoring. Thus, the firms should publicly disclose less voluntarily. Similarly, because of the capital markets’ limited roles, security analysts should acquire information about these firms less extensively. Examining Japanese firms, this study documents that analyst forecasts are less accurate and less concentrated (i.e., more dispersed) for firms with long established relationships with banks. Likewise, the analyst coverage and the forecast accuracy and concentration are all lower for firms with a larger amount of loans (i.e., private debt).