TY - JOUR
T1 - Financial analysts' career concerns and the cost of private debt
AU - Francis, Bill
AU - Hasan, Iftekhar
AU - Liu, Liuling
AU - Wu, Qiang
AU - Zhao, Yijiang
N1 - Funding Information:
We thank William L Megginson (editor) and two anonymous referees for their helpful comments and suggestions.
Publisher Copyright:
© 2020 Elsevier B.V.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/4
Y1 - 2021/4
N2 - 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.
AB - 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.
KW - Analysts' career concerns
KW - Cost of bank loans
KW - Firm risk
KW - Natural experiment
UR - http://www.scopus.com/inward/record.url?scp=85099179831&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2020.101868
DO - 10.1016/j.jcorpfin.2020.101868
M3 - Journal article
AN - SCOPUS:85099179831
VL - 67
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
SN - 0929-1199
M1 - 101868
ER -