The Information Externality of Public Firms’ Financial Information in the State-Bond Secondary Market

Journal of Accounting Research, Volume 59, Issue 2

Posted: 24 May 2021

See all articles by Stephanie F. Cheng

Stephanie F. Cheng

Tulane University - A.B. Freeman School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2021

Abstract

This study provides evidence on the role of public firms’ financial reports in the state-bond secondary market. I investigate the informational role of corporate earnings announcements and find that public firms’ monthly earnings signals aggregated to the state level are positively associated with contemporaneous state-bond returns. Further analyses reveal that public firms’ earnings announcements predict traditional economic indicators and contain incremental information that is independent of the traditional economic indicators. In cross-sectional analyses, I show that the earnings–returns relation is especially pronounced when bondholders face longer investment horizons and higher credit risks. Taken together, the evidence indicates a positive externality of corporate financial reports in alleviating the opacity in the municipal bond secondary market.

Keywords: information externality; municipal debt; public finance; aggregate earnings; economic indicator

JEL Classification: D82, D83, H74, M40, M41

Suggested Citation

Cheng, Stephanie F., The Information Externality of Public Firms’ Financial Information in the State-Bond Secondary Market (May 1, 2021). Journal of Accounting Research, Volume 59, Issue 2, Available at SSRN: https://ssrn.com/abstract=3850333

Stephanie F. Cheng (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

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