Do high levels of analyst following improve companies’ credit ratings: Evidence from MENA region?

Abstract

All investors and stakeholders in general worry about the accuracy of both the financial information and the corporate governance, yet at different scales. Knowing that inadequacies exist in the financial information, would we be able to find some ways that would help us improve the credit rating of the firms? In order to answer this question, our research’s aim is to define the impact of analyst following (analyst quest) on firm’s credit rating throughout the period between 2002 and 2014. The research’ results exhibit that the level of analyst following has a positive influence on firms’ credit rating. However, this constructive influence occurs only when there is a significant degree of analyst following. Indeed, at a low analyst following, our results reveal a negative correlation between this factor and the firm’s credit rating. Consequently, we end up concluding that a high degree of analyst following makes it difficult for insiders to miscommunicate the right information related to firm’s value which reduces agency problems leading to a positive credit rating, thus a low cost of debt.