Financial analysts' career concerns and the cost of private debt

Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/88879

Title:	Financial analysts' career concerns and the cost of private debt
Authors:	Francis, B Hasan, I Liu, L Wu, Q Zhao, Y
Issue Date:	Apr-2021
Source:	Journal of corporate finance, Apr. 2021, v. 67, 101868
Abstract:	Career-concerned analysts are averse to firm risk. Not only does higher firm risk require more effort to analyze the firm, thus constraining analysts' ability to earn more remuneration through covering more firms, but it also jeopardizes their research quality and career advancement. As such, career concerns incentivize analysts to pressure firms to undertake risk-management activities, thus leading to a lower cost of debt. Consistent with our hypothesis, we find a negative association between analyst career concerns and bank loan spreads. In addition, our mediation analysis suggests that this association is achieved through the channel of reducing firm risk. Additional tests suggest that the effect of analyst career concerns on loan spreads is more pronounced for firms with higher analyst coverage. Our study is the first to identify the demand for risk management as a key channel through which analysts help reduce the cost of debt.
Keywords:	Analysts’ career concerns Cost of bank loans Firm risk Natural experiment
Publisher:	Elsevier
Journal:	Journal of corporate finance
ISSN:	0929-1199
DOI:	10.1016/j.jcorpfin.2020.101868
Appears in Collections:	Journal/Magazine Article

Status	embargoed access
Embargo End Date	2022.04.30

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