Financial Statement Comparability and Bond Yield Spreads

This study examines whether financial statement comparability is associated with bond yield spreads in the Korean debt market. When firms provide financial information that is comparable to that published by other firms, creditors are more likely to require relatively lower expected returns, as they obtain high quality information, resulting in a lower cost of debt capital. Thus, we predict that greater financial comparability reduces the cost of debt capital, proxied by bond yield spreads. Using a sample of firms listed on the Korean Stock Exchange over the period from 2003 to 2012, we find that greater financial statement comparability reduces bond yield spreads, supporting the notion that the debt market views low comparability as an additional risk premium. Our finding suggests that financial statement comparability plays an important role in reducing firms' financing costs from creditors and contributes to an efficient allocation of capital.