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The Information Externality of Public Firms’ Financial Information in the State‐Bond Secondary Market
Author(s) -
CHENG STEPHANIE F.
Publication year - 2021
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12361
Subject(s) - earnings , corporate bond , bond market , bond , externality , investment (military) , business , monetary economics , secondary market , economics , earnings response coefficient , finance , financial system , microeconomics , politics , political science , law , stock exchange
This study provides evidence on the role of public firms’ financial reports in the state‐bond secondary market. I investigate the informational role of corporate earnings announcements and find that public firms’ monthly earnings signals aggregated to the state level are positively associated with contemporaneous state‐bond returns. Further analyses reveal that public firms’ earnings announcements predict traditional economic indicators and contain incremental information that is independent of the traditional economic indicators. In cross‐sectional analyses, I show that the earnings–returns relation is especially pronounced when bondholders face longer investment horizons and higher credit risks. Taken together, the evidence indicates a positive externality of corporate financial reports in alleviating the opacity in the municipal bond secondary market.