The Changing Relevance of Accounting Information to Debt Holders Over Time

Posted: 7 Oct 2016

See all articles by Dan Givoly

Dan Givoly

Pennsylvania State University, Smeal College of Business

Carla Hayn

University of California at Los Angeles - Anderson School of Management

Sharon P. Katz

INSEAD

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2016

Abstract

A number of studies have examined the change over time in the information content of accounting numbers to stockholders. However, the stockholders’ perspective is not necessarily identical to that of debt holders. The two groups face different risks and rewards, and thus their informational needs are not the same. We examine the change in the information content of accounting numbers over time from the debt holders’ perspective and hypothesize about the economic and reporting factors likely to affect this change. Using the association between accounting numbers and bond valuation and returns, we find that the information content to debt holders has increased over time. In contrast, but consistent with prior studies, we find that the information content to equity holders has declined. The results suggest that the increased information content to debt holders is related to changes in credit risk and to reporting factors such as the increase in reporting conservatism, the shift towards fair value accounting, and the increase in the frequency of losses. The findings contribute to the scant literature on the use of accounting information by debt holders and the extent to which financial reporting meets their unique needs.

Keywords: Bond valuation, bond returns, accounting information, conservatism

JEL Classification: G10, G30, M21, M41

Suggested Citation

Givoly, Dan and Hayn, Carla and Katz, Sharon P., The Changing Relevance of Accounting Information to Debt Holders Over Time (October 4, 2016). Review of Accounting Studies, Forthcoming; Columbia Business School Research Paper No. 16-72. Available at SSRN: https://ssrn.com/abstract=2847701

Dan Givoly

Pennsylvania State University, Smeal College of Business ( email )

305 Business Building
University Park, PA 16802
United States
814-865-0587 (Phone)
814-863-8393 (Fax)

Carla Hayn

University of California at Los Angeles - Anderson School of Management ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9225 (Phone)

Sharon P. Katz (Contact Author)

INSEAD ( email )

Boulevard de Constance
CEDEP No. 11
F-7705 Fontainebleau Cedex, 77305
France

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