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Initial evidence on the role of accounting earnings in the bond market

Journal

Journal of Accounting Research

Subject

Accounting

Publishing details

Journal of Accounting Research 2009 Vol 47:3 p 721-766

Authors / Editors

Easton P D;Monahan S J;Vasvari F P

Biographies

Florin Vasvari

Publication Year

2009

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.

Available on ECCH

No


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