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We study the sinking fund provision in 1,533 nonconvertible corporate bonds issued from 1980 to 1996 with the year 1996 being the last year of inclusion for these provisions in fixed coupon non-convertible corporate bonds. The period 1980 to 1996 is classified as the period of high interest rates (Tewari, Byrd, and Ramanlal, 2015). We find that the provision addresses agency issues due to reinvestment risk, credit improvement, and growth options. When the interest rates are high, investment grade issues with sinking fund have longer maturities (> 20 years) by a ratio exceeding 4:1, while non-sinking fund issues have shorter maturities (≤ 20 years) by a ratio of about 2:1. High yield issues with sinking fund experience credit risk improvement, while non-sinking fund issues experience credit risk deterioration. When the rates are low and expected to rise, the provision is likely to present accumulation threat to the firm thereby, deterrent to its use by the firms. Also, firms use the sinking fund as a call option to capture the benefits of growth. These results suggest that the sinking fund provision has the potential to make a comeback in the corporate debt in a high-interest rate environment and when the rates are likely to fall. The current environment of persistent high rates presents conditions ripe for inclusion of the sinking fund provision in the corporate bonds.

Using a large sample of bond rating downgrades of US firms announced by the three largest rating agencies during 1997-2023, I find that cumulative abnormal stock returns (CAR) spanning the day of and day following downgrade announcements are significantly and negatively related to annual report readability, indicating that downgrades are more informative among firms with more readable annual reports. My baseline regression results indicate that a one standard deviation improvement in annual report readability corresponds to a reduction in the announcement CAR of approximately forty-three basis points, which is economically meaningful given that it constitutes roughly 27% of the sample average announcement CAR of -1.62%. Furthermore, additional analysis reveals that the informativeness enhancing effect that better annual report readability has on rating downgrades is stronger among firms that should be more difficult to monitor and evaluate, including lower rated firms, firms with high stock return volatility, and younger firms. Overall, the results strongly support the hypothesis that well-written annual reports facilitate more timely and informative bond rating downgrades, especially among more informationally problematic firms.