Purpose The concept of materiality is becoming increasingly important for sustainability performance measurement and reporting. It is widely agreed upon that materiality matters, in the sense that companies should identify, prioritize and disclose information on sustainability issues that are considered material. There is, however, a tension at the heart of this consensus, owing to parallel approaches to materiality being used in practice. This paper aims to shed light on how and why the parallel uses of the materiality concept may cause confusion and how this tension could be resolved. Design/methodology/approach This paper takes as point of departure the tension between two approaches to materiality: based on the Global Reporting Initiative definition, which emphasizes sustainability issues that are important to stakeholders and that have significant impacts and based on the Sustainability Accounting Standards Board definition, which emphasizes sustainability issues that are financially material, i.e. likely to influence the financial performance of the company. This paper discusses the nature and consequences of the tensions between how the two definitions of materiality in sustainability reporting are used in practice, with a particular emphasis on users of information in financial markets. This paper provides empirical insight on these users’ perspectives through a survey (n = 30) and qualitative interviews (n = 6) of financial market professionals. Findings This study reveals tensions between different approaches to materiality in practice and how this may lead users of sustainability reports to draw unjustified conclusions on the basis of materiality assessments. Specifically, this paper demonstrates the perceived shortcomings in information availability and information quality from the perspectives of different stakeholders in financial markets with different information needs. Practical implications The users of sustainability reporting information require clarity in the communication of materiality in non-financial reports. This paper addresses how such clarity can be pursued. Social implications Clarity about materiality in non-financial reporting is important both for investors that pursue financial return on green investments and for society at large, which relies on information about real sustainability impacts. Originality/value This paper furthers the understanding of how different materiality concepts may be problematic and how recent and ongoing developments may mitigate the risks of conflating uses of the concept.

We investigate the role of physical distance in corporate lending by exploiting infrastructure improvements as shocks to travel time. Lower travel time increases the likelihood of initiating a new banking relationship, consistent with an economic surplus from lower transaction costs. In existing lending relationships, banks capture part of this surplus by increasing interest rates, in particular, if banks have higher bargaining power. Reductions in travel time to competing banks have the opposite effects. Banks benefit from improved infrastructure through an increase in clients, and lenders that rely more on technology do not exhibit sensitivity to changes in distance. This paper was accepted by Victoria Ivashina, finance.

Motivated by the risk of stopped debt coupon payments from a leveraged company in financial distress, we value a level dependent annuity contract where the annuity rate depends on the value of an underlying asset-process. The range of possible values of the asset is divided into a finite number of regions. The annuity rate is constant within each region, but may differ between the regions. We consider both infinite and finite annuities, with or without bankruptcy risk, i.e., bankruptcy occurs if the asset value process hits an absorbing boundary. Such annuities are common in models of debt with credit risk in financial economics. Suspension of debt service under the US Chapter 11 provisions is one well-known real-world example. We present closed-form formulas for the market value of such multi-level annuities contracts when the market value of the underlying asset is assumed to follow a geometric Brownian motion.

Performance sensitive debt (PSD) contracts link a loan's interest rate to the borrower's measure of credit relevant firm performance, e.g., if the borrower becomes less creditworthy, the interest rate increases according to a predetermined schedule. PSD provisions are included in approximately 35% of all U.S. and Canadian corporate loans (1994. Based on standard no-arbitrage theory and observed contractual specifications, we derive and empirically test a new pricing model for PSD contracts with a cash flow driven performance measure. Our sample consists of 270 PSD loans where the loan contractual terms are collected from Thomson Reuter's Dealscan database and the borrower information is collected from Compustat and CRSP. The theoretical market value of a PSD contract is on average 3.2% above par value at the time of issue. By considering the subsamples of only interest increasing and interest decreasing PSD contracts, respectively, we find that the former is overpriced by 7.7% on average, whereas the latter, on average, exhibits no significant mispricing. The empirically observed overpricing of interest increasing contracts is consistent with the signalling hypothesis of Manso, Strulovici & Tchistyi (2010) and the cost of moral hazard explanation of Asquith, Beatty & Weber (2005). The not significant mispricing of interest decreasing contracts is consistent with the idea that borrowers have increased bargaining power in the form of outside alternative financing options for these contracts.

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