This study finds that better reporting quality is associated with less uncertainty about credit risk as captured by disagreement among the credit rating agencies. The results also show that reporting quality is more important in reducing uncertainty when debt market participants have less access to private information. To mitigate endogeneity concerns, I use the quasi-natural experiment induced by a change in accounting standards that improved reporting quality. Implementation of the standard led to less disagreement among the rating agencies. Overall, this study contributes to the literature on the impact of reporting quality on debt markets and intermediaries.

Whether the information environment affects the cost of capital is a fundamental question in accounting and finance research. Relying on theories about competition between informed investors as well as the pricing of information asymmetry, we hypothesize a cross-sectional variation in the pricing of information asymmetry that is conditional on competition. We develop and validate empirical proxies for competition using the number and concentration of institutional investor ownership. Using these proxies, we find a lower pricing of information asymmetry when there is more competition. Overall, our results suggest that competition between informed investors has an important effect on how the information environment affects the cost of capital.