Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market
50 Pages Posted: 12 Feb 2021
Date Written: October 16, 2020
We propose a novel method of measuring the comparability of reported accounting numbers from the perspective of creditors. We demonstrate the validity of the measure and show that new bond issues of firms with superior comparability have better credit ratings and reduced bond yields, ceteris paribus. This is 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.
Keywords: Comparability, creditors, credit ratings, bond yields, bond markets
JEL Classification: G32, M41
Suggested Citation: Suggested Citation