Stock‐bond return co‐movement and accounting information

Abstract

I examine how an important attribute of financial reporting quality, i.e., accounting conservatism, affects the sensitivity of corporate bond returns to changes in the value of equity (i.e., the hedge ratio). The correlation between stock and bond returns (co‐movement) is a fundamental input for asset allocation decisions as it determines the diversification benefits of bonds relative to equities within an investment portfolio. According to structural models of credit risk, co‐movement should be generally positive, but lower when the risk of wealth transfers from bondholders to shareholders is severe. I find that firms that report conservative earnings and use covenants in their bond contracts exhibit on average stronger co‐movement. This result is consistent with conservatism providing bondholders with a credible and contractible signal that improves monitoring, thus preventing wealth transfers.

Información contable y el riesgo financiero - riesgo del accionista enfocado a empresas mineras peruanas

“…Los artículos aplican su investigación a distintas partes interesadas como, por ejemplo, a instituciones financieras y PYMES. (Qatawneh, 2020) (Riahi & Hammami, 2019) (Andrikopoulos & Khorasgani, 2018) (Cascino, 2017). Un artículo desarrolla la relación de la información contable con el riesgo de liquidez, este tiene como objetivo identificar el impacto del sistema de información contable en la reducción de los riesgos de liquidez en los bancos islámicos en Arabia.…”

Debt contract strictness and auditor specialization

“…In sum, this argument is consistent with the agency perspective which implies that accounting‐based covenants can limit opportunistic behavior by the borrower in debt contracting. However, such contracting efforts induce agency costs or an expense that arises from the lender's need to monitor management's actions (Cascino ). These agency costs include efforts to produce and assure the accuracy of financial statements provided by the creditor firm.…”

Asset volatility

“…Therefore we select the representative bond based on amount outstanding. Similar bond selection criteria are used by Correia et al (2012) and Cascino (2017). an estimate of the historical correlation between equity and bond returns.…”