We develop a novel technique to extract credit-relevant information from the
text of quarterly earnings calls. This information is not spanned by
fundamental or market variables and forecasts future credit spread changes. One
reason for such forecastability is that our text-based measure predicts future
credit spread risk and firm profitability. More firm- and call-level complexity
increase the forecasting power of our measure for spread changes. Out-of-sample
portfolio tests show the information in our measure is valuable for investors.
Both results suggest that investors do not fully internalize the
credit-relevant information contained in earnings calls