Debt Specialization and Information Opaqueness

42 Pages Posted: 27 Mar 2015

See all articles by Petya Platikanova

Petya Platikanova

ESADE - Ramon Llull University

Kazbi Soonawalla

University of Oxford - Said Business School

Date Written: September 18, 2014

Abstract

In this study, we suggest that level of information opaqueness determines the propensity of publicly listed firms to have debt financing from only a few debt types (i.e., debt specialization). Using accruals quality as a proxy for information opaqueness, we find that the degree of debt specialization is lower for firms with high-quality accruals. This result is consistent with the notion that information collection and monitoring costs are higher for firms that have higher informational opacity, explaining the tendency toward debt specialization. We further argue that the demand for monitoring by creditors is lower for firms with intensified institutional monitoring. The empirical findings show that firms with more concentrated institutional owners are more likely to be less specialized by debt type and that debt specialization is less sensitive to accruals quality in such firms. Using earnings timeliness and readability of annual reports as alternative proxies for information quality, we confirm the higher propensity to concentrate debt claims by type. We further examine how debt specialization changes following the arrival of bad news and find that the debt structure is more sensitive to accruals quality following the issuance of SEC letters regarding reporting deficiencies.

Keywords: debt structure, information opacity, institutional investors, accruals quality

JEL Classification: M41, G32

Suggested Citation

Platikanova, Petya and Soonawalla, Kazbi, Debt Specialization and Information Opaqueness (September 18, 2014). Available at SSRN: https://ssrn.com/abstract=2585400 or http://dx.doi.org/10.2139/ssrn.2585400

Petya Platikanova (Contact Author)

ESADE - Ramon Llull University ( email )

Avenguda de Pedralbes 60
Barcelona, 08034
Spain

Kazbi Soonawalla

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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