The Information Sensitivity of Debt in Good and Bad Times

We empirically document the dynamics of information production and information sensitivityof bank debt around the Great Recession. As more precise information is produced at theonset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions.First, precise information amplifies the effect of market expectations on default risk; second, forbanks that are already expected to perform poorly, more precise information further increasesdefault risk. Both effects are muted in good times. Overall, our findings are consistent withinformation-based models of financial crises