Longitudinal accounting comparability and bond credit spreads: Evidence from China

Shijiao Cao and Jianqiong Wang

Accounting and Finance, 2023, vol. 63, issue 2, 1953-1981

Abstract: This paper proposes a procedure to measure firms’ longitudinal accounting comparability and investigates whether it affects bond risk premiums. The results provide robust evidence that bonds of firms with more longitudinally comparable accounting information have lower credit spreads. This effect is stronger when the firms’ financial performance is poor and for bonds with speculative credit ratings. Results also reveal that firms with less longitudinally comparable accounting information are more informationally asymmetric and do have a higher expected default probability. Finally, the effects of the longitudinal and the cross‐sectional comparability in reducing bond credit spreads are incremental to each other.

Date: 2023
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