Accounting Information in the Bond Market – The Financial Distress Perspective

35 Pages Posted: 23 Aug 2012 Last revised: 8 Aug 2017

See all articles by Ronny Hofmann

Ronny Hofmann

University of Western Australia; Maastricht University

Thomas R. Loy

University of Bremen

Date Written: June 30, 2017


This study contributes to the literature in two ways. First, we provide evidence that accounting accruals and cash flows are not associated with corporate bond returns during periods with a low level of financial distress. However, using OLS estimations we find a significant association of accounting accruals with annual bond returns during financial distress periods. These results suggest that the perceived relevance of accounting information hinges on the level of distress in the economy. Second, we use semi-parametric estimation techniques (quantile regressions) to mitigate concerns about the coefficients´ dependence on conditional quantiles of bond returns. Our results show that accounting information is significantly associated in higher quantiles of bond returns and hence, the association of accruals and cash flows seems to depend on the quantile distribution of the bond returns. Overall, both analyses, OLS and quantile regression, provide evidence that the relevance of accounting information in the bond market cannot be investigated without additional information that may have an impact on the credibility of the information provided in financial reports.

Keywords: Bond market; Financial distress; Information signals

JEL Classification: G01, M4, M41

Suggested Citation

Hofmann, Ronny and Hofmann, Ronny and Loy, Thomas R., Accounting Information in the Bond Market – The Financial Distress Perspective (June 30, 2017). Available at SSRN: or

Ronny Hofmann (Contact Author)

University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009

Maastricht University

Tongersestraat 53
PO Box 616
Maastricht, Limburg 6211

Thomas R. Loy

University of Bremen ( email )

Universitaetsallee GW I
Bremen, D-28334

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