Earnings Management, Analyst Forecasts and Credit Rating of Corporate Bond: Empirical Evidences from Chinese Listed Companies

Abstract

Bond credit rating is a comprehensive evaluation by credit rating agencies on the credit records, financial status and operating results of bond issuing companies. Because of information asymmetry, bond credit rating is influenced by information disclosed by companies through earnings management and information forecasted by analysts as an independent third party. Based on 311 samples of Chinese listed companies which issued bonds for the first time from 2011 to 2017, this paper studied the relationships among company earnings management, analyst forecasts and credit rating of corporate bonds. Our empirical results show that, in order to improve the bond credit rating, company managers do have some earnings management behaviors before bond issuing, and the extent of earnings management is positively correlated with its bond rating. We also find that the forecasted corporate rating by analysts is positively correlated with its bond rating, and analyst forecasts cannot restrain the impact of earnings management on bond rating and does not exclude the collusion with corporate management. Earnings management and analysts forecast and have certain mutual promotion effect on bond credit rating. The conclusions of this paper are conducive to information regulates and stakeholder decisions.