Earnings News and Over‐the‐Counter Markets

Stefan J. Huber, Chongho Kim and Edward M. Watts

Journal of Accounting Research, 2024, vol. 62, issue 2, 701-735

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: (1) improved access to dealers and (2) 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.

Date: 2024
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https://doi.org/10.1111/1475-679X.12522

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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:62:y:2024:i:2:p:701-735

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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