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

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  • Arnold, Grace E.
  • Rhodes, Meredith E.

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.

Suggested Citation

  • Arnold, Grace E. & Rhodes, Meredith E., 2021. "Information sensitivity of corporate bonds: Evidence from the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317256
    DOI: 10.1016/j.frl.2020.101911
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    Cited by:

    1. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    2. Fasano, Francesco & Javier Sánchez-Vidal, F. & La Rocca, Maurizio, 2022. "The role of government policies for Italian firms during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    COVID-19; Bond spreads; Corporate bonds; Operating leverage;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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