Mandatory Financial Statement Disclosure and Credit Ratings

• In Event: Credit Ratings

Abstract

We analyze how mandatory financial statement disclosure influences credit ratings. Identification comes from a large-scale quasi-natural experiment in Germany, where more than one million private firms were required to disclose financial statements to the public. We find that financial statement disclosure slightly improves the credit ratings of firms that already possess a good credit rating before disclosure, whereas the credit ratings of firms with low ratings prior to disclosure decline significantly. This leads to an economically meaningful reallocation of (trade) credit among private firms. We also find that credit rating agencies are better able to assess the credit risk of private firms once the new disclosure regulation became effective.

Authors

• steven vanhaverbeke, KU Leuven

• Benjamin Balsmeier, Technical University Freiberg, Faculty of Economics, Chair for International Management and Corporate Strategy

• Thorsten Doherr, Centre for European Economic Research (ZEW), Department of Industrial Economics and International Management