Article1993

Bond and Stock Market Response to Unexpected Earnings Announcements

95 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

This study examines whether earnings changes convey information in bond markets and finds a significant positive (negative) reaction to unexpected earnings increases (decreases). The results are consistent whether earnings announcements precede or follow dividend announcements. Thus, earnings surprises convey information to bond markets and changes in firm value are split among bondholders and stockholders. This is in contrast to evidence from studies examining unexpected dividend announcements where bond price reaction is asymmetric. Cross-sectional analysis reveals that bond excess returns are positively related to earnings surprises.

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1968An Empirical Evaluation of Accounting Income Numbers 1990Evidence that stock prices do not fully reflect the implications of current earnings for future earnings 1989An analysis of intertemporal and cross-sectional determinants of earnings response coefficients 1980Quarterly Dividend and Earnings Announcements and Stockholders' Returns: An Empirical Analysis 1989On the Usefulness of Earnings and Earnings Research: Lessons and Directions from Two Decades of Empirical Research 1981Common stock repurchases and market signalling 1982Financial analysts' forecasts of earnings 1980The effects of capital structure change on security prices

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1995A PERSPECTIVE ON ACCOUNTING AND STOCK PRICES 1999The Effect of Limited Liability on the Informativeness of Earnings: Evidence from the Stock and Bond Markets*2015Informed Trading in Corporate Bonds Prior to Earnings Announcements 2017When does the bond price reaction to earnings announcements predict future stock returns?2011Information efficiency of the U.S. credit default swap market: Evidence from earnings surprises

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