The Informational Role of Investor Relations: Evidence from the Debt Market

61 Pages Posted: 26 Dec 2018 Last revised: 2 Mar 2020

See all articles by Eunjee Kim

Eunjee Kim

Cornell SC Johnson College of Business

Mani Sethuraman

Cornell University

Thomas D. Steffen

Yale University School of Management

Date Written: February 28, 2020

Abstract

We explore the role of investor relations (IR) in debt markets. Using short windows surrounding earnings announcements as a laboratory, we examine whether, when, and to what extent IR departments help credit investors assimilate firm-specific information. We find that the presence of IR decreases (increases) the negative (positive) impact on CDS spreads stemming from bad (good) earnings news, suggesting that IR efforts improve information precision and reduce transparency risk. We also document faster CDS price discovery following negative earnings for IR firms, consistent with IR improving credit investors’ understanding of performance especially when earnings miss expectations. We find no evidence of IR affecting the positive tone of credit risk disclosures or post-announcement reversal in CDS spreads, implying that the documented effects are not due to IR misleading investors. Because firms choose their IR activities, we also show that our inferences are robust to multiple methods of addressing endogeneity.

Keywords: investor relations; credit default swaps; conference calls; earnings announcements; IR; debt markets; CDS

Suggested Citation

Kim, Eunjee and Sethuraman, Mani and Steffen, Thomas D., The Informational Role of Investor Relations: Evidence from the Debt Market (February 28, 2020). Available at SSRN: https://ssrn.com/abstract=3297289 or http://dx.doi.org/10.2139/ssrn.3297289

Eunjee Kim

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Mani Sethuraman (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Thomas D. Steffen

Yale University School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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