Abstract

Prior literatures argue that Book－Tax Difference(hereafter "BTD") can be the signal of redflag in the stock market or result from manager's opportunistic behavior because BTD means the inconformity between accounting income and taxable income. And information for BTD may make negative effects on rating of bond credit. Thus, BTD is informative for bond investor's decision－making process. This study investigates whether bond investors use information for BTD in pricing bond. Especially, we analyze whether BTD and temporary BTD has additional explanatory power in bond pricing, after controlling bond and firm specified effects. The results of this study can be summarized as following. First, BTD has statistically significant positive coefficients with bond spread. It indicates that bond investors require additional risk premium on pricing because more the uncertainty of future bond yield as the book－tax inconformity is higher. Furthermore, the uncertainty of loss firms is higher. Second, there is significantly positive relationship between bond spread and temporary BTD. Especially, this result also presents that investors underprice the bond of higher BTD firms. Third, interaction between BTD and theoretical determinants of bond yield mitigates bond price. it shows that BTD in bond market can be regarded as negative signal or symptoms in future of bond issuers. Thus, this supports prior literatures. Finally, NOL has a significant positive relation with bond spread. That is, information about NOL negatively functions in the bond pricing process.

Keywords

• Book－Tax Difference
• Temporary BTD
• Bond Spread
• Bond Price
• NOL

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