Information sensitivity of corporate bonds: Evidence from the COVID-19 crisis

Grace E. Arnold and Meredith E. Rhodes

Finance Research Letters, 2021, vol. 42, issue C

Abstract: We explore the information sensitivity of corporate bonds throughout the COVID-19 crisis by examining whether there is a differential market response to firms with high operating leverage. Our results show that investors appear to discriminate based on firm operating leverage, which estimates the inability to adjust operating inputs quickly. Spreads of high operating leverage firms increase by 70 basis points upon the Fed’s corporate credit facilities announcement, while spreads from all other firms decreased, indicating concern about potential downgrades. When the facilities expanded, which made some downgraded firms eligible, spreads declined by 146 basis points for highly leveraged firms.

Keywords: COVID-19; Bond spreads; Corporate bonds; Operating leverage (search for similar items in EconPapers)
JEL-codes: E58 G01 G14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317256

DOI: 10.1016/j.frl.2020.101911

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