Informed trading on debt covenant violations: The long and short of it

Zhu, Yushu and Gippel, Jennifer (2015) Informed trading on debt covenant violations: The long and short of it. Accounting and Finance, . doi:10.1111/acfi.12126


Author Zhu, Yushu
Gippel, Jennifer
Title Informed trading on debt covenant violations: The long and short of it
Journal name Accounting and Finance   Check publisher's open access policy
ISSN 1467-629X
0810-5391
Publication date 2015-04-22
Year available 2015
Sub-type Article (original research)
DOI 10.1111/acfi.12126
Total pages 27
Publisher Wiley-Blackwell Publishing Asia
Collection year 2016
Language eng
Abstract We examine whether disclosure of complex information events reduces information asymmetry by investigating the long- and short-term impact of firms' disclosure of debt covenant violations on the probability of informed trading. We argue debt covenant violation disclosures provide informed agents with a long window of opportunity to trade on their private information largely due to the uncertainty arising from the debt renegotiation process. We find the probability of informed trading is greater after the disclosure, particularly when the violation outcomes are unresolved or where there is concern about possible future violations.
Keyword Debt covenant violation disclosure
Information asymmetry
Probability of informed trading
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
UQ Business School Publications
 
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