The Informational Role of Investor Relations Officers: Evidence from the Debt Market
56 Pages Posted: 26 Dec 2018
Date Written: December 2, 2018
This paper explores the role of investor relations officers (IROs) in debt markets. Using a short window surrounding quarterly earnings announcements as a laboratory, we examine whether, when, and to what extent IROs help credit markets assimilate firm-specific information. We find that the presence of IROs decreases the sensitivity of the CDS market reaction to negative quarterly earnings news, suggesting that IROs help investors better understand firm performance when earnings fall short of market expectations. With respect to a plausible mechanism for this effect, we find that IROs provide more credit-risk-relevant information during earnings conference calls after the announcement of negative earnings news. We also document faster CDS price discovery following negative earnings news in the presence of IROs, supporting our conclusion that IROs improve credit investors’ understanding of firm performance. Finally, we examine firms issuing new bonds and find that, relative to non-IRO firms, firms with IROs experience lesser disagreement among rating agencies, benefit from higher credit ratings, and are restricted by fewer covenants.
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