Managerial learning in the corporate bond market

This study demonstrates that firm managers actively learn from their corporate bond prices when making capital investment decisions. The positive firm investment-bond q sensitivity is particularly pronounced when bonds are more liquid with greater incentives for informed trading. Conversely, the investment-bond q sensitivity shows a negative response to the institutional sell-herding measure, which identifies non-fundamental-based price changes. This corporate bond prices learning channel makes extra contributions alongside the equity learning channel, providing evidence to the argument of the better empirical predictability of bond prices on firms’ investment. Notably, the bond learning channels are more significant in the firms of low-rating, high-illiquid, closer to default, and shorter maturity.