Financial Reporting Quality and Dual-Holding of Debt and Equity

• 成果类型: Article
• 署名作者: Peyravan, Leila
• 署名单位: Rice University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52661
• 发表日期: 2020
• 页码: 351-371
• 关键词: earnings quality; institutional investors; private information; disclosure; cost; INVESTMENT; accruals; covenants; banking

摘要

I investigate whether the financial reporting quality (FRQ) of a firm influences the propensity of institutional investors to simultaneously hold the firm's debt and equity (dual-holding). I predict that the underlying reason for institutional dual-holding is access to the better information that is available to lenders in firms with low FRQ. Accordingly, I find that dual-holders are more likely to participate in firms with low FRQ. Additionally, I predict and find that dual-holders trade on the additional information received from borrowers. I find that dual-holders achieve excess returns of 8 percent on their trades in the borrower's equity, and that the direction of their trades predicts the direction of borrowers' news on the earnings announcement day. Finally, I demonstrate that dual-holders' trades generate excess returns only in firms with low FRQ, suggesting that investors become dual-holders in firms with low FRQ because informed trades in such firms offer higher returns.