The information content of analysts reports and bankruptcy risk measures

Abstract

We evaluate the information content of analysts’ reports and bankruptcy risk quantities towards each other, and examine whether differences arise between low- and high-risk firms and between stock recommendations and earnings forecasts. We reveal that past changes in analysts’ reports convey valuable information towards future developments in default risk measures, analysts’ outcome rely upon lagged modifications in corporate creditworthiness, and the predictive power in both directions is more pronounced among high risk enterprises. Furthermore, default likelihoods and analysts’ recommendations and forecasts Granger cause each other, generating a significant feedback system. Moreover, earnings forecasts portray more profound relations to credit risk quantities than stock recommendations.