The Impact of News Articles and Corporate Disclosure on Credit Risk Valuation

43 Pages Posted: 26 Aug 2014

See all articles by Feng-Tse Tsai

Feng-Tse Tsai

National Formosa University; Asia University

Hsin-Min Lu

National Taiwan University - Department of Information Management

Mao-Wei Hung

National Taiwan University

Date Written: August 24, 2014

Abstract

This paper elucidates the importance of the information content of text information from public sources, including newspapers and corporate filings, has for credit market investors. We adopted news coverage and news tone to quantify text information from news articles. We captured the qualitative risk disclosure of individual firms by quantifying textual information in the risk factor disclosures of corporate filings (i.e., Form 10-K and 10-Q). Our empirical study yielded three main findings. First, net news tone reduces credit risk. Second, more news coverage leads to a higher credit risk, after correcting for the selection problem caused by firm size, industry, past stock returns and volatilities, a result suggesting that while positive news has a positive impact on credit risk, information from the news media can increase volatility, worsening credit risk. Finally, more risk factor disclosure leads to lower credit risk for debt issuers, but systematic risk and tax risk disclosure are positively associated with credit risk. Overall, our results suggest that text information from newspapers and corporate filings contain incremental information content for firms’ credit risk evaluations. Moreover, these two information sources play distinctive roles in signaling firms’ future credit conditions.

Keywords: credit default swap, credit risk, news coverage, news tone, risk factor disclosure, information asymmetry

JEL Classification: M41, G12

Suggested Citation

Tsai, Feng-Tse and Lu, Hsin-Min and Hung, Mao-Wei, The Impact of News Articles and Corporate Disclosure on Credit Risk Valuation (August 24, 2014). Available at SSRN: https://ssrn.com/abstract=2486292 or http://dx.doi.org/10.2139/ssrn.2486292

Feng-Tse Tsai

National Formosa University ( email )

64 Wenhwa Road
Yunlin 632, Taiwan, ROC
Taiwan

Asia University ( email )

500, Lioufeng Rd., Wufeng
Taichung, 41354
Taiwan

HOME PAGE: http://www.asia.edu.tw

Hsin-Min Lu (Contact Author)

National Taiwan University - Department of Information Management ( email )

No.1,Sec. 4, Roosevelt Rd
Taipei
Taiwan

Mao-Wei Hung

National Taiwan University ( email )

50 Lane 144, Section 4
Taipei 32026
Taiwan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
176
Abstract Views
1,153
Rank
307,910
PlumX Metrics