Purdue University Graduate School
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Do Sell-Side Analysts Provide More Information Following Debt Covenant Violations?

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posted on 2020-07-09, 17:14 authored by Rixing LouRixing Lou
This study examines whether financial analysts produce larger amounts of research output and whether their research is more valuable for investors following a debt covenant violation (DCV, hereafter). After a DCV, investor uncertainty about firm value and information asymmetry among stakeholders likely increases. It is therefore difficult for investors to assess firm prospects, resulting in increased demand for firm-specific information. Sell-side analysts, as sophisticated information intermediaries, are skilled at gathering and processing information; thus they are well-suited to provide more research output in response to increased investor demand. I predict and find that equity analysts provide a larger amount of research, proxied by recommendation revisions and earnings forecast revisions, after a DCV. I also document an incremental association between a DCV and analyst research production for firms with less financial flexibility, firms with low institutional ownership, and firms covered by more experienced analysts. In addition, I find evidence that analyst research becomes more valuable and that uncertainty-adjusted analyst forecast errors decrease following a DCV. These results suggest that a change in a firm’s information environment associated with a DCV has significant influence on investors and equity analysts besides the economic consequences documented in prior literature.


Degree Type

  • Doctor of Philosophy


  • Management

Campus location

  • West Lafayette

Advisor/Supervisor/Committee Chair

Kevin Koharki

Additional Committee Member 2

Jonathan Black

Additional Committee Member 3

Theodore Goodman

Additional Committee Member 4

Lin Nan

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