Managerial learning in the corporate bond market

This study shows that firm managers actively learn from corporate bond prices when making capital investment decisions. The managerial dependence on the bond markets is negatively responsive to bond fund institutional sell-herding, which reflects non-fundamental price changes in firms. This learning channel complements the equity-based learning process, providing additional evidence for the predictive power of bond prices in explaining investment behavior. The bond learning effect is stronger in firms with shorter bond maturities, lower credit ratings, and those at greater risk of default, highlighting how corporate bond prices inform managers about their firms’ default risk.

Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5331521