Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market

50 Pages Posted: 12 Feb 2021

See all articles by Paula Hill

Paula Hill

University of Bristol

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Shuo Wang

University of Groningen; University of Bristol - School of Economics, Finance and Management

Date Written: October 16, 2020

Abstract

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

Hill, Paula and Lobo, Gerald J. and Wang, Shuo, Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market (October 16, 2020). Available at SSRN: https://ssrn.com/abstract=3713075 or http://dx.doi.org/10.2139/ssrn.3713075

Paula Hill (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Shuo Wang

University of Groningen ( email )

P.O. Box 800
Nettelbosje 2
9700 AE Groningen, Groningen 9700 AV
Netherlands
+31 50 36 33535 (Phone)

HOME PAGE: http://https://www.rug.nl/staff/shuo.wang/

University of Bristol - School of Economics, Finance and Management ( email )

United Kingdom

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