In the second funding period, this project is merged with A03 “Determinants of Textual Transparency” and will be continued in project B05 “Transparency and Financial Markets”.

Kosi investigates the demand of debt providers for financial information. As a first step, they explore debt-market related transparency regulation and identify the effect of this regulation on transparency. Next, they study private firms that issue public debt to isolate the debt market incentives of transparency. Finally, they investigate whether firms’ qualitative disclosure goes beyond what is already contained in quantitative accounting numbers. Taken together, the results will help to understand the matching of demand for and supply of information in debt markets, and thus address the role of debt markets for firm transparency.

• Research Question

  How do financial disclosures and debt provider preferences affect transparency, and how does transparency affect the activity and information asymmetry on the bond market?

• Research Motivation

  Financial capital is crucial for firms to pursue their investment opportunities and grow. Firms can obtain equity capital from their owners and debt capital from creditors. However, debt markets have received less attention from researchers than equity markets. Reasons could rest in the diversity of debt markets, the multitude of regulatory and disclosure regimes, and limited data availability. Thus, we explore debt-market related transparency regulation and investigate the effect of this regulation on transparency. Then, we study privately-held firms that issue public debt and in this way isolate the debt market incentives of transparency.

• Research Program

  The studies in this project complement other projects in the TRR by focusing on financial reporting as an integral part of the information environment, and investigate the link between corporate debt markets and the availability, accuracy, and clarity of information. We concentrate on (i) the European debt market and its idiosyncrasies generating differences in disclosure requirements and (ii) the assessment of bond investors’ demand for transparency and issuers’ potential rewards from meeting it. Our objective is to construct a comprehensive dataset on disclosure regulation in specific debt market segments and present recent developments and regulatory changes in the European debt market. We further contribute to the existing literature on the role of financial reporting in debt markets by investigating privately-held European firms. We aim to validate the relation between transparency and access to the public debt market using revealed preferences of bond investors.

• Research Contribution

  We aim at providing a basis for further empirical research in the debt market and complementing TRR projects on equity market regulations. Our results will help stakeholders to understand the matching of demand for and supply of information in debt markets.