Financial reporting comparability in US firms issuing debt in the US primary market

We propose a method of measuring the comparability of reported accounting numbers from the perspective of creditors. Our measure reflects the relationship between market variables related to default probabilities and key accounting numbers of interest to lenders. We demonstrate that our measure captures the mapping between the market variables and the accounting system and that the values are consistent with expected differences in comparability in a range of tests and settings. We employ this measure to determine the impact of comparability in the US primary bond market and find that it has a negative and significant relationship with the spread of credit rating assessments of new bond issues. We also show that new bond issues of firms with superior comparability have better credit ratings and reduced bond yields, ceteris paribus. We find that the benefits of our lender-focused, balance-sheet-based comparability measure to the public bond market are robust to controlling for the earnings-based financial statement comparability measure of De Franco et al. (2011), and independent of economic similarities between firm pairs. Our findings are commensurate with comparability reducing the information uncertainty surrounding credit risk assessments derived from a firm's financial information.