Bond Market Transparency and Stock Price Crash Risk: Evidence from a Natural Experiment

The Accounting Review, forthcoming. https://doi.org/10.2308/TAR-2019-0154.

49 Pages Posted: 16 Jan 2019 Last revised: 11 Nov 2022

See all articles by Yuyan Guan

Yuyan Guan

Nanyang Business School, Nanyang Technological University

Jeong-Bon Kim

Simon Fraser University; City University of Hong Kong

Boluo Liu

Shanghai University of Finance and Economics - School of Accountancy

Xiangang Xin

The Chinese University of Hong Kong (CUHK)

Date Written: January 7, 2019

Abstract

Utilizing the Trade Reporting and Compliance Engine (TRACE) setting as an exogenous shock to bond market transparency, we find that improved bond market transparency leads to lower crash risk in the stock market, consistent with increased information spillover from the bond market into the stock market. Results from the Path analysis suggest that bond market transparency affects stock price crash risk not only directly, but also indirectly through its effects on management guidance, analyst forecasts, and media reports. We also find that the mitigation effect of bond market transparency on stock price crash risk is more pronounced for firms with higher default risk bonds, lower institutional stock ownership, and more opaque financial reporting. Overall, our findings suggest that increased bond market transparency following TRACE generates a positive externality in reducing crash risk in the stock market.

Keywords: bond market transparency; information spillover; bad news dissemination; stock price crash risk

JEL Classification: D83; G14; G24

Suggested Citation

Guan, Yuyan and Kim, Jeong-Bon and Liu, Boluo and Xin, Xiangang, Bond Market Transparency and Stock Price Crash Risk: Evidence from a Natural Experiment (January 7, 2019). The Accounting Review, forthcoming. https://doi.org/10.2308/TAR-2019-0154. , Available at SSRN: https://ssrn.com/abstract=3316625

Yuyan Guan

Nanyang Business School, Nanyang Technological University ( email )

52 Nanyang Ave
Singapore, 639798
Singapore

Jeong-Bon Kim

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Boluo Liu

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Xiangang Xin (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong

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