Information risk and credit contagion

•This paper demonstrates a positive relationship between information risk and the credit contagion effect.•Firms with higher information risk suffer a greater contagion effect that occurs in advance to the credit default events.•The positive relation is interdependent with both the credit rating class of firm and stock return momentum.•The finding is robust under controls of firm-specific characteristics and general condition of stock and credit markets.

This paper demonstrates a positive relationship between information risk and the credit contagion effect. We use abnormal changes in the Credit Default Swaps (CDS) spreads to measure the contagion effect, and the dispersion of analyst forecasts as a proxy for information risk. We find that firms with higher information risk suffer a greater contagion effect that occurs in advance to the credit default events. This finding is robust under controls of key firm-specific characteristics and general condition of stock and credit markets.