The Information Content of Quarterly Earnings in Syndicated Bank Loans Prices

Allen, Linda; Guo, Hongtao; Weintrop, Joseph

doi:10.2139/ssrn.572847

Cited by 13 publications

(9 citation statements)

References 45 publications

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“…While the results shown in Allen et al [2004] are consistent with ours, there are key differences between our study and theirs. First, we examine the association between annual earnings and bond returns for a large sample of bonds traded by insurance companies.…”

supporting

confidence: 89%

“…This first prediction is similar to that in Allen, Guo, and Weintrop [2004], who examine returns that are based on bid–ask spreads quoted by dealers in the secondary loan market. They show that returns occurring during the week of the earnings announcement are indistinguishable from 0 and returns on loans issued by firms that ultimately report earnings increases are not different from 0 during any of the five weeks prior to the earnings announcement.…”

supporting

confidence: 73%

“…Second, our returns are based on prices arising from executed trades not bid–ask quotes. Finally, we examine the behavior of bond trades around earnings announcements, which Allen et al [2004] do not. It is also important to note that there are significant differences between the secondary syndicated loan market and the secondary bond market: (1) more speculative grade loans trade in the secondary syndicated loan market than investment grade loans (e.g., Wittenberg‐Moerman [2008]) while in the bond market we have the opposite situation (see ), (2) the secondary syndicated loan market is relatively new and less liquid than the secondary bond market and, thus, quoted prices are more likely to reflect a liquidity discount, and (3) because the ownership of syndicated loans is fairly concentrated, banks have access to more timely private sources of information and, thus, are less likely to react to public announcements of earnings.…”

mentioning

confidence: 99%

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Initial Evidence on the Role of Accounting Earnings in the Bond Market

Easton

Monahan

Vasvari

2009

J of Accounting Research

197

123

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We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements, (2) there is a bond‐price reaction to the announcement of earnings, and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market.

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supporting

confidence: 89%

supporting

confidence: 73%

mentioning

confidence: 99%

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Initial Evidence on the Role of Accounting Earnings in the Bond Market

Easton

Monahan

Vasvari

2009

J of Accounting Research

197

123

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“…In addition, most syndicated loans are structured with covenant restrictions in the loan agreement. The covenant structure entitles all members of the syndicate to the receipt of monthly or quarterly financial updates, detailing accounting data such as EBITDA, debt levels, free cash flows, and net worth (Allen et al, 2005). Therefore, syndicate members can receive a considerable amount of private information about the financial condition of the borrower and update their expectations about borrower's future cash flows based on frequent and timely accounting information from the borrower.…”

Section: Review Of Literaturementioning

confidence: 99%

“…4 The fully developed securitization tools and ratings induce participation of large populations of informed lenders and institutional investors, and increase levels of liquidity in this market (Miller, 1998; and Oldham, 1998). However, unlike the stock or the bond markets, the secondary loan market has characteristics of both a public (stock or bond) market and a private lending contract (Dennis and Mullineaux, 2000; and Allen et al, 2005). Like private lending contracts, loan syndicate members, the majority of whom are banks and institutional investors, have the privileges to access borrowers' private information on a more frequent and timely basis.…”

Section: Introductionmentioning

confidence: 99%

Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market

Park

2009

Business Fin & Account

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In this paper, we investigate the effect of financial restatements on the debt market. Specifically, we focus on the secondary loan market, which has become one of the largest capital markets in the US, and ask the following: (1) whether financial restatements increase restating firm's cost of debt financing and (2) whether the information about restatements arrives at the secondary loan market earlier than at the stock market? Using 176 restatement data, we find significant negative abnormal loan returns and increased bid-ask spreads around restatement announcements. Furthermore, this negative loan market reaction is more pronounced when the restatement is initiated by either the SEC or auditors, and when the primary reason for restatement is related to revenue recognition issues. Additionally, we find restatement information arrives at the secondary loan market earlier than at the equity market, and that such private information quickly flows into the equity market. We also show that stock prices begin to decline approximately 30 days prior to the restatement announcements for firms with traded loans. However, we do not find such informational leakage for firms without traded loans. Collectively, the results of this paper suggest: (1) increased cost of debt financing after restatements and (2) superior informational efficiency of the secondary loan market to the stock market. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

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The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan Market

Allen

Gottesman

2006

J Finan Serv Res

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To our knowledge, this is the first paper to examine the informational efficiency of the equity market as compared to the syndicated bank loan market. The loan market is a private market comprised of financial institutions with access to private information. We test whether this is reflected in informationally efficient price formation in the loan market vis a vis the equity markets, and reject this private information hypothesis. We find support for a liquidity hypothesis, suggesting that equity markets lead loan markets, despite bank lenders' access to private information, because of greater liquidity in equity markets. Only when equity markets are relatively illiquid do we find evidence supporting the private information hypothesis. Finally, we find evidence of abnormal returns if portfolios are constructed using lagged equity returns to designate investments in the syndicated bank loan market.2

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The Information Content of Quarterly Earnings in Syndicated Bank Loans Prices

Cited by 13 publications

References 45 publications

Initial Evidence on the Role of Accounting Earnings in the Bond Market

Initial Evidence on the Role of Accounting Earnings in the Bond Market

Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market

The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan Market

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