| Using sell-side bond analysts' forecasts, collected from their debt reports for the period 2001-2010, this study examines the determinants and properties of bond analysts' forecasts on cash flows and earnings. Initial evidence indicates that the probability to issue cash flow (earnings) forecasts is greater (smaller) for bond analysts than for equity analysts, consistent with the notion that cash flow (earnings) information is more (less) important to bond investors than for stock investors. My analysis further shows that bond analysts are less optimistic in both cash flow and earnings forecasts than equity analysts, implying that bond analysts' view on firm's future performance is driven by bond investors' asymmetric demand for good news and bad news. In addition, bond analysts' cash flow (earnings) forecasts are more (less) accurate than equity analysts' cash flow (earnings) forecasts, which manifests bond investors' stronger demand for reliable information on future cash flows than for earnings. Finally, my additional cross-sectional analysis reveals that bond analysts are more likely to issue cash flow forecasts for firms with greater volatility of cash flows and under more severe liquidity constraint. Overall, this study enhances our understanding of the informational role bond analysts play in the bond market through their forecasting activities. |
