The Information Content of Quarterly Earnings in Syndicated Bank Loan Prices

This paper examines the information content of quarterly earnings announcements in the syndicated bank loan market by focusing on the private release of earnings information to loan syndicate members. In contrast to the literature on equity price reactions to earnings announcements, we find significant price movements in the secondary loan market four to five weeks prior to public earnings announcement dates, around the time of mandated covenant reports to members of the syndicate. This paper finds that the loan market reaction to private information about earnings is asymmetric. such that loan returns decline when earnings decline. but there is no significant loan market reaction to earnings increases. The results are robust to controlling other earnings pre-announcement information.