Credit risk and off-balance-sheet contractual obligations: Disclosures under Rule FR-67
Item
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Title
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Credit risk and off-balance-sheet contractual obligations: Disclosures under Rule FR-67
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Identifier
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d_2009_2013:85538949e10e:11894
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identifier
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12565
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Creator
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Zhao, Sha,
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Contributor
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Aloke Ghosh
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Date
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2013
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Language
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English
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Publisher
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City University of New York.
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Subject
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Accounting
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Abstract
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To increase transparency in financial reporting and to promote a better understanding of companies' off-balance sheet obligations, the Securities and Exchange Commission issued Final Rule No. 67 (FR-67) to mandate a tabular disclosure of all known on- and off-balance sheet contractual obligations in a single location within the Management's Discussion and Analysis (MD&A) from 2003. Using a sample of S&P 1500 companies, I examine whether the disclosures under Rule FR-67 influence the assessment of credit risk by credit rating agencies, public bond holders, and private loan lenders. I find that all four credit risk measures (i.e., credit ratings, negative credit watch, bond spreads, and the number of covenants in private loan contracts) significantly increase with off-balance sheet obligations when the firms report the tabular disclosures of contractual obligations for the first time. My results also suggest that the three major debt-market participants view purchase obligations at least as relevant as operating leases and other types of off-balance sheet obligations in explaining firms' credit risk. This evidence should be of interest to regulators, investors, and creditors in addressing the present debate about to what extent off-balance sheet items should be recognized on the balance sheet.
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Business
