Document Type
Article
Publication Date
2014
Publication Title
Investment Analysts Journal
First Page
25
Last Page
36
DOI
http://www.tandfonline.com/doi/abs/10.1080/10293523.2014.11082573
Abstract
This paper examines whether beating previous year cash flow values and analysts' cash flow forecasts impact the firms' cost of debt. Creditors are expected to be more concerned about firm solvency than firm profitability. Accordingly, if lenders have any reference point it may be related to cash flow numbers. This study finds that firms that beat analysts' cash flow forecasts have smaller initial bond yield spreads in the next period and a decrease in their initial bond yield spreads between consecutive periods. This effect is more pronounced at short maturities and for observations with less informative earnings. Firms with lower earnings response coefficients that beat analysts' cash flow forecasts show a higher probability of a credit rating upgrade.
Rights
This is an Accepted Manuscript of an article published by Taylor & Francis in Investment Analysts Journal on 2015-02-18, available online: http://wwww.tandfonline.com/10.1080/10293523.2014.11082573.
Recommended Citation
Melgarejo, Mauricio A., "Does Beating Cash Flow Benchmarks Reduce the Cost of Debt?" (2014). Scholarship and Professional Work - Business. 274.
https://digitalcommons.butler.edu/cob_papers/274
Included in
Accounting Commons, Corporate Finance Commons, Management Sciences and Quantitative Methods Commons, Portfolio and Security Analysis Commons
