TY - JOUR
T1 - The debt market relevance of management earnings forecasts
T2 - Evidence from before and during the credit crisis
AU - Shivakumar, Lakshmanan
AU - Urcan, Oktay
AU - Vasvari, Florin P.
AU - Zhang, Li
N1 - Funding Information:
Acknowledgments We acknowledge helpful comments from three anonymous reviewers, Karthik Balakrishnan, Jeff Callen, Jim Ohlson, Mark Clatworthy, Doron Nissim (the editor), David Reeb, Scott Richardson (discussant), and participants at the 2010 Review of Accounting Studies Conference, 2010 HKUST Accounting Research Symposium, 4th Manchester Business School/LSE Accounting Conference, Tel Aviv University, and Turku School of Economics. We thank Viral Acharya for graciously sharing the CDS Markit data with us. Oktay Urcan and Florin Vasvari acknowledge the financial support from London Business School Research and Materials Development Fund.
PY - 2011/9
Y1 - 2011/9
N2 - We investigate the credit market's response via changes in credit default swap (CDS) spreads to management earnings forecasts and evaluate the importance of these forecasts relative to earnings news during the periods before and during the recent credit crisis. We document that credit markets react significantly to management forecast news and that the reactions to forecast news are stronger than to actual earnings news. Consistent with the asymmetric payoffs to debt holders, the forecast news is mainly relevant for firms with poor credit rating or announcing bad news. We also show that the relevance of management forecasts to credit markets is particularly strong during periods of high uncertainty, as experienced during the recent credit crisis.
AB - We investigate the credit market's response via changes in credit default swap (CDS) spreads to management earnings forecasts and evaluate the importance of these forecasts relative to earnings news during the periods before and during the recent credit crisis. We document that credit markets react significantly to management forecast news and that the reactions to forecast news are stronger than to actual earnings news. Consistent with the asymmetric payoffs to debt holders, the forecast news is mainly relevant for firms with poor credit rating or announcing bad news. We also show that the relevance of management forecasts to credit markets is particularly strong during periods of high uncertainty, as experienced during the recent credit crisis.
KW - Credit crisis
KW - Credit default swaps
KW - Earnings announcements
KW - Management earnings forecasts
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U2 - 10.1007/s11142-011-9155-6
DO - 10.1007/s11142-011-9155-6
M3 - Article
AN - SCOPUS:80051795419
SN - 1380-6653
VL - 16
SP - 464
EP - 486
JO - Review of Accounting Studies
JF - Review of Accounting Studies
IS - 3
ER -