Earnings News and Over-the-Counter Markets


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: (i) improved access to dealers and (ii) 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.

Journal of Accounting Research, Forthcoming
Edward M. Watts
Edward M. Watts
Assistant Professor of Accounting

Edward Watts is an Assistant Professor of Accounting at the Yale School of Management.