Issuance Systems, Trading Mechanisms and Earning Information in Bond Pricing

Abstract

Abstract:

This paper documents how earnings persistence and the change of earnings affect bond pricing. We find that earnings persistence is negatively related to the underpricing of initial public offerings (IPOs) in the corporate bond market. In bond trading market, quarterly incremental earnings and cash flows are positively related to cumulated abnormal returns while quarterly incremental accruals are negatively related to cumulated abnormal returns. In addition, the relation is more significant in bonds audited by registration system than it is in bonds audited by approval system, indicating that the registration system is more efficient in bond pricing. These relations are more significant under public-bidding system than they are under market-maker system, implying that the public-bidding system is more efficient than market-maker system in bond pricing.

Key words: IPOs underpricing, market performance, earnings persistence, securities issuance systems, trading mechanisms

Lyu Huaili, Zhong Yuxiang, Li Wanli. Issuance Systems, Trading Mechanisms and Earning Information in Bond Pricing[J]. , 2016, 28(12): 14-29.

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