The debt market relevance of disclosure tone : evidence from the pricing of credit default swaps

資訊披露基調的債務市場相關性 : 基於信用違約掉期市場價格的實證證據

Student thesis: Doctoral Thesis

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  • Ke WANG

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Awarding Institution
Award date15 Jul 2015


This paper examines whether disclosure tone conveys credit risk-relevant information to the debt market. Using a large sample of the Securities and Exchange Commission (SEC) 10-K and 10-Q filings, I find that the change in credit default swap (CDS) spreads over the three-day window surrounding the SEC filing date is positively associated with the pessimism of the language used in the 10-K or 10-Q filing. Consistent with nonlinear payoff functions for creditors, this association is more pronounced for reference entities with speculative credit ratings. These findings indicate that the tone of periodic SEC filings is useful for CDS investors to evaluate the reference entity’s credit risk. In addition, I find stronger reaction of CDS spreads to disclosure tone when the CDS contract has shorter maturity, equity short sellers are more active, or the reference entity has weaker information environment. Finally, I provide evidence that the tone of 10-K and 10-Q reports has predictive power for both actual default events and accounting-based default risk in the subsequent four quarters. Overall, these results support the view that disclosure tone has information content for debt market investors. Keywords: disclosure tone; credit default swap; 10-K; 10-Q; credit risk

    Research areas

  • Default (Finance), Securities, Prices, Disclosure of information