Does Other Comprehensive Income Volatility Influence Credit Risk and the Cost of Debt?

• 成果类型: Article
• 署名作者: Bao, May Xiaoyan; Billett, Matthew T.; Smith, David B.; Unlu, Emre
• 署名单位: University System Of New Hampshire; University of New Hampshire; Indiana University System; Indiana University Bloomington; University of Nebraska System; University of Nebraska Lincoln
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12548
• 发表日期: 2020
• 页码: 457-484
• 关键词: CORPORATE GOVERNANCE; VALUE-RELEVANCE; INFORMATION; INVESTMENT; bankruptcy; maturity

摘要

We examine the usefulness of other comprehensive income (OCI) to debt investors in nonfinancial companies. Motivated by Merton's (1974) real options framework, we construct a measure of incremental OCI volatility, designed to capture the effect of OCI on overall firm asset volatility, which is a primary driver of credit risk in Merton's (1974) model. We find that the volatility of incremental OCI influences the likelihood of default, credit ratings, and the cost of debt. Overall, our evidence suggests that creditors use information from OCI in their assessment of firm credit risk and in pricing debt contracts.