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Journal of Accounting Research Vol. 47 No. 3 2009

Initial Evidence on the Role of Accounting Earnings in the Bond Market

Peter D. Easton1; Steven J. Monahan2; Florin P. Vasvari3

1 University of Notre Dame · 2 INSEAD · 3 London Business School. We thank Ray Ball (the editor), Robert Battalio, Nick Barberis, Donal Byard, Helen Choy, Shane Corwin, Carla Hayn, Art Kraft, Wayne Landsman, Rick Mendenhall, Jim Ohlson, Shiva Shivakumar, Wayne Thomas, Joe Weber, Regina Wittenberg-Moerman, an anonymous reviewer and seminar p

Abstract

We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements, (2) there is a bond‐price reaction to the announcement of earnings, and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market.

DOI
10.1111/j.1475-679x.2009.00333.x
Volume
47
Issue
3
Pages
721-766
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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