The impact of financial reporting quality on debt maturity: the case of private firms

The Role of Financial Reporting Quality in Accessing to Financial Debt: Evidence From Italy

“…In this way, a firm could adopt opportunistic behaviours (moral hazard) aimed to withhold information to banks and financial institutions, concealing its risk of non-payment. To preserve themselves from this risk and to evaluate a firm's credit quality, creditors can get information by financial statement of the firms to predict their future cash flows because the cash flow represents the future reimbursement capacity of a firm (De Meyere et al, 2018). Healy and Wahlen (1999) have argued that lower (higher) financial reporting quality increases (decreases) information asymmetry because financial reporting quality can reduce adverse selection and moral hazard issues.…”

“…In another study, Garcí a-Teruel et al (2014a) also found that higher accrual quality associated to higher precision of cash flow estimates guarantees an easier access to bank loans. Finally, the accrual quality has been also employed to study the association between debt maturity and financial reporting quality (De Meyere et al, 2018). Analysing Belgian market, De Meyere et al (2018) have found that information asymmetry affects the debt maturity structure of firms sampled, showing that accounting quality has a positive impact on the proportion of long-term debt in total debt and on the probability of having long-term debt.…”

“…So, our research aims to investigate the effect of financial reporting quality on the debt maturity structure of Italian Non-SMEs. We expect that information asymmetry will influence creditors in their choices to lending long-term debt because of two main reasons (De Meyere et al, 2018). First, higher information asymmetry limits the estimating of future cash flows more as the time horizon of forecasting becomes longer.…”

“…Then, García-Teruel et al (2010) have argued that it is convenient adding as control variable a default risk score to measure the financial situation of firms and to control the effect of credit quality. Therefore, we used the default risk measured by EM-score (Note 1) , classifying the firms sampled into three categories depending on their riskiness (De Meyere et al, 2018): the healthy firms with a EM-score above 3.75 (i.e. the base case), the firms with a medium risk profile as determined by a EM-score in between 1.74 and 3.75 (indicated by Grey), and the weakest firms having an EM-score of below 1.74 (indicated by Distress).…”

“…This paper investigates whether financial reporting quality affects the access to financial debt of Italian Non-SMEs. Our work derives from several studies dealing with the role of financial International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 reporting quality in determining cost of capital and debt (Francis et al, 2005), debt maturity structure in Spain (Garcí a-Teruel et al, 2010) and in Belgium (De Meyere et al, 2018), investment efficiency (Biddle et al, 2009) (Chen et al, 2011) and audit committee quality (Rainsbury et al, 2009).…”