Do significant risk warnings in annual reports increase corporate bond credit spreads? Evidence from China
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摘要
Based on listed companies issuing bonds on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2017, this study analyzes the relationship between significant risk warnings in Chinese companies' annual reports and corporate bond credit spreads. The main findings are as follows. First, in the Chinese market, ‘‘substantial warnings of significant risks" can significantly improve corporate bond credit spreads, reflecting the risk-warning effect; second,state-owned property rights weaken this effect, which only pertains to listed companies with poor risk management and low information quality; third, significant risk warnings increase investors' heterogeneous beliefs, also affecting credit spreads; and fourth, through textual analysis, it is found that the corporate bond credit spread is greater when the disclosed risk factors are more pessimistic and less similar to those of the previous year. The findings of this paper help to enrich the literature on credit spreads and risk disclosure.
Based on listed companies issuing bonds on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2017, this study analyzes the relationship between significant risk warnings in Chinese companies' annual reports and corporate bond credit spreads. The main findings are as follows. First, in the Chinese market, ‘‘substantial warnings of significant risks" can significantly improve corporate bond credit spreads, reflecting the risk-warning effect; second,state-owned property rights weaken this effect, which only pertains to listed companies with poor risk management and low information quality; third, significant risk warnings increase investors' heterogeneous beliefs, also affecting credit spreads; and fourth, through textual analysis, it is found that the corporate bond credit spread is greater when the disclosed risk factors are more pessimistic and less similar to those of the previous year. The findings of this paper help to enrich the literature on credit spreads and risk disclosure.
Based on listed companies issuing bonds on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2017, this study analyzes the relationship between significant risk warnings in Chinese companies' annual reports and corporate bond credit spreads. The main findings are as follows. First, in the Chinese market, ‘‘substantial warnings of significant risks" can significantly improve corporate bond credit spreads, reflecting the risk-warning effect; second,state-owned property rights weaken this effect, which only pertains to listed companies with poor risk management and low information quality; third, significant risk warnings increase investors' heterogeneous beliefs, also affecting credit spreads; and fourth, through textual analysis, it is found that the corporate bond credit spread is greater when the disclosed risk factors are more pessimistic and less similar to those of the previous year. The findings of this paper help to enrich the literature on credit spreads and risk disclosure.
引文
Brown, S.V., Tucker, J.W., 2011. Large-sample evidence on firms'year-over-year MD&A modifications. J. Acc. Res. 49(2), 309-346.
Callen, J.L., Livnat, J., Segal, D., 2009. The impact of earnings on the pricing of credit default swaps. Acc. Rev. 84(5), 1363-1394.
Campbell, J., Chen, H., Dhaliwal, D., Lu, H.-M., Steele, L., 2014. The information content of mandatory risk factor disclosures in corporate filings. Rev. Acc. Stud. 19(1), 396-455.
Chiu, T., Guan, Y., Kim, J., 2017. The effect of risk factor disclosures on the pricing of credit default swaps. Contemp. Acc. Res. 10, 111 1-1911.
Defond, M.L., Zhang, J., 2014. The Timeliness of the Bond Market Reaction to Bad Earnings News. Contemp. Acc. Res. 31(3), 911-936.
Duffie, D., Lando, D., 2001. Term structure of credit spread with incomplete accounting information. J. Economet. Soc.(69), 633-664
Elliott, W. B., Rennekamp, K. M., and White, B. J. 2015. The Paradoxical Effects of Directional Goals on Investors'Risk Perceptions and Valuation Judgments. Working paper.
Fanning, K., Agoglia, C.P., Piercey, M.D., 2015. Unintended consequences of lowering disclosure thresholds. Acc. Rev. 90(1), 301-320.
Fang, H., Chen, Z., 2015. Can high-quality internal control effectively cope with idiosyncratic risk and systemic risk? Acc Res 4, 70-77.
Filzen, J.J., Peterson, K., 2015. Financial statement complexity and meeting analysts'expectations. Contemp. Acc. Res. 32(4), 1560-1594.
Hope, O.K., Hu, D., Hai, L., 2016. The benefits of specific risk-factor disclosures. Rev. Acc. Stud. 21(4), 1005-1045.
Jiang, G., Lee, C.M.C., Zhang, Y., 2005. Information uncertainty and expected returns. Rev. Acc. Stud. 10(2-3), 185-221.
Kidwell, D.S., Koch, T.W., Stock, D.R., 1984. The impact of state income taxes on municipal borrowing costs. Natl. Tax J. 37(4),551-561.
Kothari, S.P., Li, X., Short, J.E., 2009. The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forcasts:a study using content analysis. Acc. Rev. 84(5), 1639-1670.
Kravet, T., Muslu, V., 2013. Textual risk disclosures and investors'risk perceptions. Rev. Acc. Stud. 18(4), 1088-1122.
Rajgopal, S., 1999. Early evidence on the informativeness of the SEC's market risk disclosures:the case of commodity price risk exposure of oil and gas producers. Acc. Rev. 74(3), 251-280.
Li, F., 2010. The Information content of forward-looking statements in corporate filings-a nave bayesian machine learning approach. J.Acc. Res. 48(5), 1049-1102.
Yu, F., 2005. Accounting transparency and the term structure of credit spreads. J. Financ. Econ. 75(1), 53-84.
Leng, A., Zhang, J., Xing, G., 2015. Research on the mechanism and influence effect of the company's external guarantee default risk transfer-based on empirical analysis of listed corporate bond spread data. Manage. Rev.(07).
Wang, X., Gao, K., 2017. Customer relationship and corporate cost stickiness:ripple or cooperation. Nankai Manage. Rev.(01).
Wu, H., Wang, S., 2016. Do bond market participants pay attention to company environmental information? Empirical evidence from China's heavily polluting listed companies. Acc. Res.(09).
Zhang, W., Zhang, Y., 2006. Heterogeneous beliefs, short-selling restrictions and risky asset prices. Journal of Management Science 9(4),58-64.
Zhou, H., Jian, L., Li, G., 2016. The Relationship between corporate social responsibility and bond credit spreads and its impact mechanism-based on empirical research of shanghai and shenzhen listed companies. Acc. Res.(05).
Zhou, H., Lin, Z., Li, G., 2014. Information uncertainty, information asymmetry and bond credit spreads. Stat. Res.(05).
Zhou, H., Yang, M., Li, Y., 2010. A Review of research on factors affecting corporate bond credit risk. Econ. Dyn.(12).
1 There are not a few companies that have been punished for failing to fully disclose risk. Dayou Energy(code 600403)and its controlling shareholder did not disclose significant risks in 2017. The chairman of the controlling shareholder was fined 600,000 yuan and imposed a 10-year market ban by the CSRC.
2 Treasury yields are obtained through the website of China Central Depository&Clearing Co., Ltd., or constructed by the linear interpolation method to get the interest rate of the same remaining maturity.
3 The disclosure of significant risk warnings began in 2012, so the values of SubstanTip that take 1 happen after 2012, but the sample period of this paper runs from the beginning of the risk disclosure policy in 2007. In this way, the samples that reveal substantial significant risks can be compared not only with the un-sampled sample, but also with samples that disclose the risk factor only to the board of directors without warning of significant risk, making the conclusion more reliable. In the following robustness test, the pre-2012 samples are also excluded.
4 SdRet, the standard deviation of stock price fluctuations in one year; EDR, downside risk of performance, according to the model of Konchichki et al.(2016), is obtained by calculating the difference between the actual accounting earning and the expected accounting earning, measuring the possibility of declining company's performance and reflecting the downside risk of performance better than other past indicators of operational risk. Zscore, the bankruptcy index, measures the risk of bankruptcy. The greater the value, the greater the risk.
5 The selection of instrumental variables is checked by over-identification, and the instrumental variables are related to the independent variables.
6 For the values of the following variables:internal control level, we use the Dibo internal control index; whether the company CEOs have risk management experience, we read the executive experience in the annual report by the textual analysis method, if CEOs have served in risk-related positions indicates risk experience; whether the company has a risk management committee, we search for a similar institution of the"risk management committee"in the full text of the annual report through textual analysis, and if it is found, it is considered to have a risk management committee.
7 The negative tone of the risk factor passage in the"Significant Risk Warning"(Riskneg)is calculated as the number of negative vocabulary/total words.
8 With reference to Brown and Tucker(2011), the similarity between the risk factor segment this year and that of the previous year(Similarity), is measured by constructing a vector cosine. The greater the similarity, the lower the information content, and vice versa.
Callen, J.L., Livnat, J., Segal, D., 2009. The impact of earnings on the pricing of credit default swaps. Acc. Rev. 84(5), 1363-1394.
Campbell, J., Chen, H., Dhaliwal, D., Lu, H.-M., Steele, L., 2014. The information content of mandatory risk factor disclosures in corporate filings. Rev. Acc. Stud. 19(1), 396-455.
Chiu, T., Guan, Y., Kim, J., 2017. The effect of risk factor disclosures on the pricing of credit default swaps. Contemp. Acc. Res. 10, 111 1-1911.
Defond, M.L., Zhang, J., 2014. The Timeliness of the Bond Market Reaction to Bad Earnings News. Contemp. Acc. Res. 31(3), 911-936.
Duffie, D., Lando, D., 2001. Term structure of credit spread with incomplete accounting information. J. Economet. Soc.(69), 633-664
Elliott, W. B., Rennekamp, K. M., and White, B. J. 2015. The Paradoxical Effects of Directional Goals on Investors'Risk Perceptions and Valuation Judgments. Working paper.
Fanning, K., Agoglia, C.P., Piercey, M.D., 2015. Unintended consequences of lowering disclosure thresholds. Acc. Rev. 90(1), 301-320.
Fang, H., Chen, Z., 2015. Can high-quality internal control effectively cope with idiosyncratic risk and systemic risk? Acc Res 4, 70-77.
Filzen, J.J., Peterson, K., 2015. Financial statement complexity and meeting analysts'expectations. Contemp. Acc. Res. 32(4), 1560-1594.
Hope, O.K., Hu, D., Hai, L., 2016. The benefits of specific risk-factor disclosures. Rev. Acc. Stud. 21(4), 1005-1045.
Jiang, G., Lee, C.M.C., Zhang, Y., 2005. Information uncertainty and expected returns. Rev. Acc. Stud. 10(2-3), 185-221.
Kidwell, D.S., Koch, T.W., Stock, D.R., 1984. The impact of state income taxes on municipal borrowing costs. Natl. Tax J. 37(4),551-561.
Kothari, S.P., Li, X., Short, J.E., 2009. The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forcasts:a study using content analysis. Acc. Rev. 84(5), 1639-1670.
Kravet, T., Muslu, V., 2013. Textual risk disclosures and investors'risk perceptions. Rev. Acc. Stud. 18(4), 1088-1122.
Rajgopal, S., 1999. Early evidence on the informativeness of the SEC's market risk disclosures:the case of commodity price risk exposure of oil and gas producers. Acc. Rev. 74(3), 251-280.
Li, F., 2010. The Information content of forward-looking statements in corporate filings-a nave bayesian machine learning approach. J.Acc. Res. 48(5), 1049-1102.
Yu, F., 2005. Accounting transparency and the term structure of credit spreads. J. Financ. Econ. 75(1), 53-84.
Leng, A., Zhang, J., Xing, G., 2015. Research on the mechanism and influence effect of the company's external guarantee default risk transfer-based on empirical analysis of listed corporate bond spread data. Manage. Rev.(07).
Wang, X., Gao, K., 2017. Customer relationship and corporate cost stickiness:ripple or cooperation. Nankai Manage. Rev.(01).
Wu, H., Wang, S., 2016. Do bond market participants pay attention to company environmental information? Empirical evidence from China's heavily polluting listed companies. Acc. Res.(09).
Zhang, W., Zhang, Y., 2006. Heterogeneous beliefs, short-selling restrictions and risky asset prices. Journal of Management Science 9(4),58-64.
Zhou, H., Jian, L., Li, G., 2016. The Relationship between corporate social responsibility and bond credit spreads and its impact mechanism-based on empirical research of shanghai and shenzhen listed companies. Acc. Res.(05).
Zhou, H., Lin, Z., Li, G., 2014. Information uncertainty, information asymmetry and bond credit spreads. Stat. Res.(05).
Zhou, H., Yang, M., Li, Y., 2010. A Review of research on factors affecting corporate bond credit risk. Econ. Dyn.(12).
1 There are not a few companies that have been punished for failing to fully disclose risk. Dayou Energy(code 600403)and its controlling shareholder did not disclose significant risks in 2017. The chairman of the controlling shareholder was fined 600,000 yuan and imposed a 10-year market ban by the CSRC.
2 Treasury yields are obtained through the website of China Central Depository&Clearing Co., Ltd., or constructed by the linear interpolation method to get the interest rate of the same remaining maturity.
3 The disclosure of significant risk warnings began in 2012, so the values of SubstanTip that take 1 happen after 2012, but the sample period of this paper runs from the beginning of the risk disclosure policy in 2007. In this way, the samples that reveal substantial significant risks can be compared not only with the un-sampled sample, but also with samples that disclose the risk factor only to the board of directors without warning of significant risk, making the conclusion more reliable. In the following robustness test, the pre-2012 samples are also excluded.
4 SdRet, the standard deviation of stock price fluctuations in one year; EDR, downside risk of performance, according to the model of Konchichki et al.(2016), is obtained by calculating the difference between the actual accounting earning and the expected accounting earning, measuring the possibility of declining company's performance and reflecting the downside risk of performance better than other past indicators of operational risk. Zscore, the bankruptcy index, measures the risk of bankruptcy. The greater the value, the greater the risk.
5 The selection of instrumental variables is checked by over-identification, and the instrumental variables are related to the independent variables.
6 For the values of the following variables:internal control level, we use the Dibo internal control index; whether the company CEOs have risk management experience, we read the executive experience in the annual report by the textual analysis method, if CEOs have served in risk-related positions indicates risk experience; whether the company has a risk management committee, we search for a similar institution of the"risk management committee"in the full text of the annual report through textual analysis, and if it is found, it is considered to have a risk management committee.
7 The negative tone of the risk factor passage in the"Significant Risk Warning"(Riskneg)is calculated as the number of negative vocabulary/total words.
8 With reference to Brown and Tucker(2011), the similarity between the risk factor segment this year and that of the previous year(Similarity), is measured by constructing a vector cosine. The greater the similarity, the lower the information content, and vice versa.