Credit Sentiments in Conference Calls and Bond Market Returns

62 Pages Posted: 29 Nov 2023 Last revised: 5 Dec 2023

See all articles by Xiao-Jun Zhang

Xiao-Jun Zhang

University of California, Berkeley; China Academy of Financial Research (CAFR)

Summer Zhao

University of California, Berkeley - Accounting Group

Date Written: December 1, 2023

Abstract

We examine whether and how bond market returns are affected by credit sentiments in conference calls, which refer to the tone of management and analysts when they discuss credit-related topics. We first show that more positive credit sentiments in conference calls are associated with more positive credit rating changes as well as lower CDS spreads and cost of debt in the future. Consistent with the asymmetric bond price responses to earnings news in the literature, we document a positive relation between credit sentiments and bond returns around earnings announcements mainly for firms with negative earnings news. We also document a significant relationship between credit sentiments and future bond returns, suggesting that bond investors underreact to credit sentiment information. Cross-sectional analysis shows that management credit sentiments are more informative for firms with more debt or worse credit ratings, but its informativeness is substantially reduced when the macro credit environment is extremely negative. Analyst credit sentiments are more informative for firms with recent issuance of new bonds or credit rating downgrades when management might have incentives to inflate their credit sentiments.

Keywords: credit sentiments, conference call, credit risks, bond returns, earnings announcement

JEL Classification: G11, G12, G14, M41

Suggested Citation

Zhang, Xiao-Jun and Zhao, Summer, Credit Sentiments in Conference Calls and Bond Market Returns (December 1, 2023). Available at SSRN: https://ssrn.com/abstract=4628305 or http://dx.doi.org/10.2139/ssrn.4628305

Xiao-Jun Zhang

University of California, Berkeley ( email )

545 Student Services Building
SPC 1900
Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Summer Zhao (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

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