Bankruptcy, manipulation of financial reporting data, and differences in corporate bond yields
Abstract
Subject. The impact of propensity to bankruptcy and manipulation of accounting data on differences in excess yields of corporate bond portfolios. Objectives. Statistical analysis of the explanatory power of bankruptcy risk factors and the risk of manipulation of financial reporting data in relation to differences in bond portfolio yields at various stages of the short-term credit cycle. Methods. The empirical base is based on data from the financial statements of corporate bond issuers, data on the results of exchange trading in corporate bonds and yields on short-term coupon-free government bonds disclosed by the Moscow Stock Exchange for 2011–2022. A Markov switching model was used to identify the stages of the short-term credit cycle. Results. It has been established that the risk of manipulation of financial reporting data and the risk of bankruptcy of the issuer have a significant impact on the market pricing of corporate bonds. This effect varies significantly between the stages of the short-term credit cycle. Conclusions. The obtained research results are of practical importance for market participants, as they emphasize the need for an integrated approach to risk assessment of investment decisions, which in turn contributes to a more stable and predictable behavior of corporate bond portfolios in a volatile economic environment.