Some Initial Evidence on the Role of Accounting Earnings in the Bond Market
Speaker
Abstract
| We demonstrate that the incidence of bond trade increases during the days surrounding quarterly earnings announcements and that there is a positive association between annual bond returns and annual earnings. These results are primarily attributable to losses. In particular, the increase in the incidence of trade during the days surrounding the announcement of a loss is significantly larger than the increase in the incidence of trade during the days surrounding the announcement of a profit. Moreover, while there is a strong positive association between bond returns and losses, bond returns and profits are unrelated. We conduct a number of sensitivity checks, none of which affect our main inference: accounting earnings are related to both bond trade and bond returns, and these relations are driven by accounting losses. Our results shed light on the burgeoning literature regarding the role of accounting losses; they suggest that bond markets provide managers with incentives to avoid reporting accounting losses and to make efficient operating and investing decisions. |
| Contact information: |
| Paolo Perego |
