Journal Article

The changing relevance of accounting information to debt holders over time

Givoly, Dan, Hayn, Carla, Katz, Sharon

2017

Overview

A number of studies have examined the change over time in the information content of accounting numbers to stockholders. However, the stockholders’ perspective is not necessarily identical to that of debt holders. The two groups face different risks and rewards, and thus their informational needs are not the same. We examine the change in the information content of accounting numbers over time from the debt holders’ perspective and hypothesize about the economic and reporting factors likely to affect this change. Using the association between accounting numbers and bond valuation and returns, we find that the information content to debt holders has increased over time. In contrast, but consistent with prior studies, we find that the information content to equity holders has declined. The results suggest that the increased information content to debt holders is related to changes in credit risk and to reporting factors such as the increase in reporting conservatism, the shift towards fair value accounting, and the increase in the frequency of losses. The findings contribute to the scant literature on the use of accounting information by debt holders and the extent to which financial reporting meets their unique needs.

• Publisher: Springer US,Springer Nature B.V
• Subject: Accounting / Accounting/Auditing / Balance sheets / Bond markets / Bonds / Business and Management / Corporate bonds / Corporate Finance / Credit risk / Equity / FASB statements / Financial reporting / Public Finance / Securities industry / Stockholders / Studies / Valuation