Accounting transparency and the term structure of credit spreads

Yu, Fan

doi:10.1016/j.jfineco.2004.07.002

Cited by 357 publications

(195 citation statements)

References 27 publications

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“…Consistent with the theory, several recent studies show that lower disclosure quality is associated with higher credit spreads (for example, Sengupta 1998; Yu 2005). Similarly, Francis et al (2005) find that greater information risk, as proxied by lower accruals quality, is associated with higher debt costs.…”

Section: Role Of Accounting Quality In the Rating Processmentioning

confidence: 60%

Tightening credit standards: the role of accounting quality

2007

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Over the latest 20 years, the average credit rating of U.S. corporations has trended down. Blume et al. (1998, Journal of Finance, 53, 1389-1413 attribute this trend to a tightening of credit standards by agencies. We reexamine the observed decreases in credit ratings in several ways. First, we show that this downward trend does not apply to speculative-grade issuers. Second, our analysis of investment-grade issuers suggests that the apparent tightening of standards can be attributed primarily to changes in accounting quality over time. After incorporating changing accounting quality, we find no evidence that rating agencies have tightened their credit standards.

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Section: Role Of Accounting Quality In the Rating Processmentioning

confidence: 60%

Tightening credit standards: the role of accounting quality

2007

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“…Our finding that AIMR scores are insignificant differs fromYu (2005). However, we use a different sampling method.…”

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confidence: 86%

“…Yu (2005) and Sengupta (1998) find that accounting disclosure practices are related to a firm's underlying cost of debt. Because the AIMR association only produced disclosure scores for selected industries over the period from 1984 to 1995, our sample is significantly reduced to 719 firm-year observations when merging the data.…”

Section: Information Variablesmentioning

confidence: 99%

“…3 While prior research primarily studies the role of analysts in the cost of equity, we address how these important information intermediaries affect the cost of debt. We also build on recent research that documents the effects of other information variables such as disclosure quality (Yu 2005;Sengupta 1998), corporate governance (Ashbaugh-Skaife et al 2006;Klock et al 2005), and probability of informed trading (Odders-White and Ready 2006) on credit ratings and bond yields. This allows us to examine whether analyst activity matters to institutional investors in the financial markets after controlling for information production by the credit rating agencies as well as disclosure quality, corporate governance, and informed trading.…”

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confidence: 99%

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Analyst forecast characteristics and the cost of debt

2010

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We examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view that the information contained in analysts' forecasts is economically significant across asset classes, we find that analyst activity reduces bond yield spreads. We also find that the economic impact of analysts is most pronounced when uncertainty about firm value is highest (that is, when firms have high idiosyncratic risk). Our findings are robust to controls for private information in equity prices and level of corporate disclosures. Overall, the results indicate that the information contained in analyst forecasts is valued outside the equity market and provide an additional channel in which better information is associated with a lower cost of capital.

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“…X 1 is interpreted as a verifiable, free signal representing partial information of X . (1 − ψ) can then be interpreted as accounting transparency, after Yu (2005), from an ex-ante viewpoint. For the unobserved part, I assume again a consol-type debt contract with constant coupons.…”

Section: Optimal MIX Of Debt and Outside Equity: Implications Of Levementioning

confidence: 99%

A Continuous-Time Analysis of Optimal Restructuring of Contracts with Costly Information Disclosure

Nakamura

2011

Asia-Pac Financ Markets

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This paper studies the role of restructuring, as compared to the one of liquidation, in valuation of long-term debt contracts in a continuous-time model with costly information disclosure. In asset-pricing literature, Merton's (J Finance 29:449-470, 1974) contingent-claim models have been long used for valuation of corporate securities and loans. However, since they basically assume sufficiently complete security structures in markets, the literature is not necessarily suitable for examining costlyinformation problems. On the other hand, in corporate-finance literature, it has been well known that agency costs (i.e., conflicts of interest among agents) distort corporate capital structure under costly-information problems. However, the effect of the distortion on valuation of securities and loans has not been explicitly studied either 123 120 H. Nakamura in theory or in practice. This paper bridges such a gap between the two literatures. This paper shows that, under a costly-information problem, corporate leverage ratios are higher when restructuring is expected to be accepted in default than otherwise. The risk of a jump to liquidation increases the default probability in short term, and decreases the probability of restructuring over time.

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Accounting transparency and the term structure of credit spreads

Cited by 357 publications

References 27 publications

Tightening credit standards: the role of accounting quality

Tightening credit standards: the role of accounting quality

Analyst forecast characteristics and the cost of debt

A Continuous-Time Analysis of Optimal Restructuring of Contracts with Costly Information Disclosure

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