The Informational Role of Investor Relations: Evidence from the Debt Market

Forthcoming in The Accounting Review

Posted: 26 Dec 2018 Last revised: 12 Feb 2021

See all articles by Eunjee Kim

Eunjee Kim

Texas A&M University - Mays Business School; Cornell SC Johnson College of Business

Mani Sethuraman

Cornell University

Thomas D. Steffen

Yale University School of Management

Date Written: October 26, 2020

Abstract

We explore the role of investor relations (IR) in debt markets. Using earnings announcements as a laboratory, we examine whether, when, and to what extent IR departments help credit investors assimilate information. We find that the presence of IR decreases (increases) the negative (positive) impact on CDS spreads stemming from bad (good) earnings news, suggesting that IR efforts improve information precision and reduce transparency risk. Cross-sectional analyses suggest that IR matters more when uncertainty is high and creditors are concerned about the credit-risk implications of firm performance. We also find that IR firms receive higher credit ratings and fewer covenants when issuing bonds, and CDS markets react less negatively when IR firms’ bond ratings are downgraded below investment grade. Because firms choose their IR activities, we show that our inferences are robust to multiple methods of addressing endogeneity. Overall, we find that IR departments are influential in debt markets.

Keywords: investor relations; credit default swaps; conference calls; earnings announcements; IR; debt markets; CDS

Suggested Citation

Kim, Eunjee and Sethuraman, Mani and Steffen, Thomas D., The Informational Role of Investor Relations: Evidence from the Debt Market (October 26, 2020). Forthcoming in The Accounting Review, Available at SSRN: https://ssrn.com/abstract=3297289 or http://dx.doi.org/10.2139/ssrn.3297289

Eunjee Kim

Texas A&M University - Mays Business School

4113 TAMU
Wehner 449K
College Station, TX 77843-4218
United States

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Mani Sethuraman (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Thomas D. Steffen

Yale University School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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