The Real Effects of Financial Statement Recognition: Evidence from Corporate Credit Ratings

• 成果类型: Article
• 署名作者: Basu, Riddha; Naughton, James P.
• 署名单位: George Washington University; University of Virginia
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2018.3251
• 发表日期: 2020
• 页码: 1672-1691
• 关键词: corporate credit ratings; rating agency; off-balance-sheet finance; RECOGNITION; pension accounting; SFAS158

摘要

We examine whether the recognition versus disclosure of identical accounting information affects the credit rating process and ultimately corporate credit ratings. The primary input into corporate credit ratings is adjusted financial statements, which the rating agencies create by modifying reported financial statements to reflect credit-relevant items not recognized under U.S. Generally Accepted Accounting Principles. The rating agencies have claimed that this process means that accounting changes that move previously disclosed information onto firms' financial statements have virtually no effect on firms' adjusted financial statements or their credit ratings. We show that this claim is incorrect using the implementation of Financial Accounting Standards Board Statement No. 158 (SFAS158). This standard did not prescribe any new financial information. Rather, it simply required the balance sheet recognition of a previously disclosed item. We find that firms recognizing an additional pension liability due to SFAS158 had lower leverage on the rating agency adjusted financial statements and received higher corporate credit ratings. This counterintuitive result occurs because the rating agency adjustments made before SFAS158 were punitive relative to the combination of the SFAS158 changes and the rating agency adjustments made after SFAS158. The difference in rating agency adjustments before and after SFAS158 was primarily due to rating agency adjustments in the preSFAS158 period that did not account for minimum liability adjustments, an aspect of pension accounting eliminated by SFAS158. Overall, our results indicate that SFAS158 generated real changes in rating agency adjustments and that these changes had real consequences for firms' credit ratings.