This paper presents a comprehensive analysis of the role of credit default swaps (CDS) in information production surrounding earnings announcements. First, we demonstrate that the strength of CDS price discovery prior to earnings announcements is related to the presence of private information and the illiquidity of the underlying corporate bonds, consistent with the CDS market being a preferred venue for informed trading. Next, we ask how the information revealed through CDS trading influences the output of equity and credit rating analysts. We find that post-CDS trading, the dispersion and error of earnings per share forecasts are generally reduced, and downgrades by both types of analysts become more frequent and more timely before large negative earnings surprises, suggesting that the CDS market conveys information valuable to financial analysts.

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This paper examines the direct relevance of accounting information for credit default swap (CDS) pricing. Prior research on the impact of accounting information for CDS pricing has neglected to include either the output of theoretical CDS pricing models or credit ratings, both of which should impound credit relevant accounting information. Both in-and out-of-sample testing results suggest that accounting information's explanatory power for CDS prices is significantly diminished when this additional information is included in regression models. Empirical findings suggest a larger indirect role for accounting information in pricing CDS', which play an important role in credit risk price discovery.

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