The Informational Role of Investor Relations: Evidence from the Debt Market
61 Pages Posted: 26 Dec 2018 Last revised: 2 Mar 2020
Date Written: February 28, 2020
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
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