Compliance With Pension-Related Mandatory Disclosures and Debt Financing
Journal of Business Finance and Accounting, 2020 https://doi.org/10.1111/jbfa.12479
Posted: 20 Jul 2020 Last revised: 3 Aug 2020
Date Written: June 26, 2020
Using hand-collected data on the level of pension-related mandatory disclosures required by International Accounting Standard 19 Employee Benefits, we test whether compliance levels with these disclosures convey information that affects firms’ access to the public instead of the private debt market, as well as the cost of their new debt issues. We document a higher tendency to access the public debt market for firms with higher levels of pension-related disclosure. Furthermore, we find that firms with higher levels of pension-related disclosure enjoy a lower cost in terms of issuance of public debt, but not a lower cost for private debt issues. Thus, the benefits of disclosure in reducing information risk are only realizable when creditors rely heavily on financial statements in their decision making, due to the limited access to private information. Additional tests reveal that high compliance levels effectively mitigate the negative effect of pension deficits on the cost of public debt. These findings provide novel evidence in the extant literature on the role of mandatory (and, in particular, pension-related) disclosures on firms’ debt financing. They also have important policy implications.
Keywords: Pension-Related Mandatory Disclosure, Compliance, Public and Private Debt Markets, Cost of Debt, IFRS
JEL Classification: G10, G14, M41, M48
Suggested Citation: Suggested Citation