The Timeliness of the Bond Market Reaction to Bad Earnings News

DeFond, Mark L.; Zhang, Jieying

doi:10.1111/1911-3846.12050

Cited by 82 publications

(57 citation statements)

References 46 publications

(67 reference statements)

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“…A −17 basis point return in three days is equivalent to a compound annualized return of −19%. The returns in our work are much larger than those found by Easton, Monahan, and Vasvari () and Defond and Zhang (), who study bond market reactions to earnings announcements.…”

Section: Resultscontrasting

confidence: 72%

Impact of New Debt Offerings on Existing Corporate Bondholders

Chen

Stock

2018

J of Financial Research

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Corporate bondholders may be concerned about the value of their bonds when the firm issues more bonds. Using bond data from the Trade Reporting and Compliance Engine (TRACE) from 2005 to 2017, we study the impact of new bond issues and relative maturity on the price of existing bonds. We find negative and significant average abnormal returns for existing bonds over a three‐day event window. Consistent with the adverse consequences of relative maturity of the new issuance, existing bond market returns are more strongly negative when the newly issued bonds mature before existing bonds. A funded debt covenant attenuates the negative return.

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Section: Resultscontrasting

confidence: 72%

Impact of New Debt Offerings on Existing Corporate Bondholders

Chen

Stock

2018

J of Financial Research

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“…) . Consistent with this argument, Defond and Zhang () show that bond prices impound bad news more quickly than good news and incorporate bad news earlier than do stock prices. Given that RFDs per se are disclosures on downside risk, they would be more relevant to credit pricing than to equity pricing.…”

Section: Institutional Background Relevant Literature and Hypothesementioning

confidence: 88%

The Effect of Risk Factor Disclosures on the Pricing of Credit Default Swaps

Chiu

Guan

Kim

2018

Contemporary Accting Res

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This study examines the relation between narrative risk disclosures in mandatory reports and the pricing of credit risk. In particular, we investigate whether and how the Securities and Exchange Commission (SEC) mandate of risk factor disclosures (RFDs) affects credit default swap (CDS) spreads. Based on the theory of Duffie and Lando (2001), we predict and find that CDS spreads decrease significantly after RFDs are made available in 10‐K/10‐Q filings. These results suggest that RFDs improve information transparency about the firm's underlying risk, thereby reducing the information risk premium in CDS spreads. The content analysis further reveals that disclosures pertinent to financial and idiosyncratic risk are especially relevant to credit investors. In cross‐sectional analyses, we document that RFDs are more useful for evaluating the business prospects and default risk of firms with greater information uncertainty/asymmetry. Overall, our findings imply that the SEC requirement for adding a risk factor section to periodic reports enhances the transparency of firm risk and facilitates credit investors in evaluating the credit quality of the firm.

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“…The quality and volume of this evidence suggests that exploring the effects of government financial reporting timeliness on municipal credit ratings should provide beneficial insights 7 Dwyer and Wilson (1989) Harford and Uysal (2014) or DeFond and Zhang (2014b). regarding the determinants of government debt costs. Evidence regarding the timeliness of reporting should systematically be related to the ratings assigned to a municipality's bonds.…”

Section: Bond Ratingsmentioning

confidence: 99%

“…More recent literature includes Plummer, Hutchison, and Patton (2007), Baber and Gore (2008), and Callahan and Waymire (2015). 12 For example, see DeFond and Zhang (2014b) ;Mansi, Maxwell, and Miller (2011);Kecske´s, Mansi, and Zhang (2012). 13 See Benson, Marks, and Raman (1991); Fairchild and Koch (1998); Baber and Gore (2008); Reck and Wilson (2014).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Government Reporting Timeliness and Municipal Credit Market Implications

Henke¹,

Maher

2016

Journal of Governmental &Amp; Nonprofit Accounting

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Municipal governments are often very slow in producing and disclosing financial statements, with the average time for filing compulsory statements taking over twice as long as the SEC-mandated time for publicly traded corporations. There are typically no governmental rules or explicit penalties connected with extended financial reporting. We propose this delay in reporting is likely to have negative capital market effects for the municipality and we investigate the credit market consequences of delayed reporting. Our empirical results are consistent with delayed reporting resulting in lower bond ratings for municipalities indicating a negative interpretation by bond rating analysts. Furthermore, we also find a higher yield for the government's bonds consistent with bond market investors also viewing this delay as a negative signal with respect to the particular government entity. Our results add to the literature on government reporting as well as the literature regarding the determinants of government bond pricing.

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The Timeliness of the Bond Market Reaction to Bad Earnings News

Cited by 82 publications

References 46 publications

Impact of New Debt Offerings on Existing Corporate Bondholders

Impact of New Debt Offerings on Existing Corporate Bondholders

The Effect of Risk Factor Disclosures on the Pricing of Credit Default Swaps

Government Reporting Timeliness and Municipal Credit Market Implications

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