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

See all articles by Khadija Almaghrabi

Khadija Almaghrabi

King Abdulaziz University; University of Glasgow

Kwaku K. Opong

University of Glasgow - Adam Smith Business School

Ioannis Tsalavoutas

University of Glasgow - Accounting and Finance Group

Date Written: June 26, 2020

Abstract

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

Almaghrabi, Khadija and Almaghrabi, Khadija and Opong, Kwaku K. and Tsalavoutas, Ioannis, Compliance With Pension-Related Mandatory Disclosures and Debt Financing (June 26, 2020). Journal of Business Finance and Accounting, 2020 https://doi.org/10.1111/jbfa.12479 , Available at SSRN: https://ssrn.com/abstract=3636470 or http://dx.doi.org/10.2139/ssrn.3636470

Khadija Almaghrabi (Contact Author)

King Abdulaziz University ( email )

P.O.Box 80200
Jeddah, 21589
Saudi Arabia

University of Glasgow ( email )

Glasgow
United Kingdom

Kwaku K. Opong

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

Ioannis Tsalavoutas

University of Glasgow - Accounting and Finance Group ( email )

Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://www.gla.ac.uk/schools/business/staff/yannistsalavoutas/

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