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

Author: Easton, Peter D. ; Monahan, Steven J. ; Vasvari, Florin P.INSEAD Area: Accounting and ControlIn: Journal of Accounting Research, vol. 47, no. 3, June 2009 Language: EnglishDescription: p. 721-766.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: 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
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INSEAD Article Europe Campus
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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

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