In this study, we investigate how qualitative information in newspapers and corporate filings affects credit risk valuation in the credit default swap (CDS) market. We adopted news coverage and news sentiment to quantify text information from news articles and quantified the qualitative risk disclosures of individual firms in their corporate filings (i.e., Form 10-K and 10-Q). Our empirical study, based on 13years of CDS data, provides several conclusions. First, more news coverage and negative news sentiment increase credit risk. Second, a higher overall volume of risk factor disclosure in corporate public filings is linked to a higher credit risk for debt issuers. Moreover, financial risk has the strongest effect among the five types of risk disclosures we considered. Overall, our results suggest that text information from newspapers and corporate filings contains incremental informational content for firms’ credit risk evaluations. These two information sources play distinctive roles in signaling issuers’ future credit conditions.

ABSTRACT We argue that volatility in a manager's disclosure tone across time should be a function of two components: (i) the firm's innate operating risk and (ii) the extent to which the manager's disclosure transparently reflects that risk. Consistent with this argument, we find that both operating risk and disclosure transparency are important determinants of disclosure tone volatility. We then examine whether investors incorporate the incremental information provided by disclosure tone volatility into their assessments of firm risk. If disclosure tone volatility primarily provides investors with incremental information about a firm's operating risk, we should find a positive association between tone volatility and market‐based assessments of risk. On the other hand, if disclosure tone volatility primarily provides investors with incremental information about a manager's disclosure transparency, we should find a negative association between tone volatility and market‐based assessments of risk. Consistent with an operating risk explanation, we find a positive association between disclosure tone volatility and market‐based assessments of firm risk after controlling for a comprehensive set of proxies for operating risk and transparency. We find little support for an information risk explanation, even when we examine multiple measures specifically designed to capture information risk. Taken together, our results suggest that although disclosure tone volatility is a function of both a firm's operating risk and a manager's disclosure transparency, investors appear to respond as if disclosure tone volatility only provides incremental information about a firm's operating risk.