Financial reporting comparability in US firms issuing debt in the US Primary Market

Gerald Lobo, Paula Hill, Shuo Wang

Research output: Contribution to conferencePaperpeer-review

Abstract / Description of output

We propose a method of measuring the comparability of reported accounting numbers from the perspective of creditors. Our measure reflects the relationship between market variables related to default probabilities and key accounting numbers of interest to lenders. We demonstrate that this measure has a negative and significant relationship with the spread of credit rating assessments of new bond issues, thus reflecting information quality. We also show that new bond issues of firms with superior comparability have better credit ratings and reduced bond yields, ceteris paribus. Our findings are commensurate with comparability reducing the information uncertainty surrounding credit risk assessments derived from a firm’s financial information. Comparison of the impact of comparability on public and private bond issues suggests that the impact of comparability is greater in the public market, which we suggest is due to the presence of uninformed investors and higher reputation costs for the rating agencies.
Original languageEnglish
Publication statusPublished - 6 Jul 2023
EventThe 26th Financial Reporting and Business Communication (FRBC) Conference 2023 - University of Bath School of Management, Bath, United Kingdom
Duration: 6 Jul 20237 Jul 2023
https://www.bath.ac.uk/events/the-frbc-conference-2023/

Conference

ConferenceThe 26th Financial Reporting and Business Communication (FRBC) Conference 2023
Abbreviated titleFRBC
Country/TerritoryUnited Kingdom
CityBath
Period6/07/237/07/23
Internet address

Keywords / Materials (for Non-textual outputs)

  • financial statement comparability
  • debt market
  • credit ratings disagreement
  • bond spread

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