Earnings News and Over-the-Counter Markets

55 Pages Posted: 6 Feb 2024

See all articles by Stefan Huber

Stefan Huber

Rice University

Chongho Kim

Seoul National University

Edward M. Watts

Yale School of Management

Date Written: January 10, 2024

Abstract

We document significant increases in bond market liquidity around earnings announcements. These increases are attributed to decreased search and bargaining costs, which arise from the over-the-counter (OTC) nature of bond markets and outweigh increases in information asymmetry during these periods. Our evidence traces reductions in search and bargaining costs to two sources around earnings announcements: (i) improved access to dealers and (ii) increased participation from institutional investors, who can more easily transact with multiple dealers. Overall, our findings highlight a novel channel through which firm-specific information affects asset prices.

Keywords: earnings announcements, corporate bonds, search and bargaining, liquidity, information asymmetry

JEL Classification: G10, G12, G14, M41

Suggested Citation

Huber, Stefan and Kim, Chongho and Watts, Edward, Earnings News and Over-the-Counter Markets (January 10, 2024). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4690564 or http://dx.doi.org/10.2139/ssrn.4690564

Stefan Huber

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Chongho Kim

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Edward Watts (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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