ABSTRACT We investigate the effect of mandatory IFRS adoption on trade credit. We document that firms in countries that adopt IFRS receive more trade credit from their suppliers, consistent with improved financial reporting quality and comparability playing a role in facilitating informal financing. This increase is larger for countries with a low level of societal trust, a poor pre‐IFRS‐adoption information environment, and stronger legal enforcement. These cross‐sectional results suggest that the conditions under which higher‐quality information is made publicly available affect suppliers' decisions to provide trade credit. This increase is also larger for firms with greater exposure to foreign markets, a finding that highlights the importance of more comparable international financial reporting standards in facilitating cross‐country trade credit. We also find that IFRS adoption has a stronger positive effect on trade credit for firms with greater liquidity needs. Finally, we find that firms in countries that adopt IFRS also extend more trade credit to their customers. Overall, our results support the notion that financial reporting can have a causal effect on trade credit.

We rely on a unique dataset of 176 privatizations from 32 countries to extend recent research on the link between the political economy and accounting transparency by examining the importance of shareholders’ proportionate holdings to auditor choice. Consistent with our predictions on shareholders’ diverging interests in high-quality financial reporting that manifests in auditor choice, we report strong, robust evidence that privatized firms worldwide become less (more) likely to appoint a Big Four auditor with the extent of state (foreign) ownership. Moreover, we find that these relations between shareholders’ equity stakes and auditor choice strengthen when country-level governance institutions are weaker.

Motivated by prior research on the informational and monitoring role of product market competition, we examine how competitive pressure affects firms' choice between bank debt and public debt. Using a sample of 3675 U.S. firms over the period 2001–2013, we find that competitive pressure from the product market leads firms to rely less on bank debt financing. In a natural experiment setting, we also find that there is a significant decrease in firm reliance on bank debt after large import tariff reductions. In additional analyses, we show that the effect of competitive pressure on debt choice is more pronounced for firms with greater exposure to competition, higher financial constraints, and weaker governance practices. Moreover, we find that product market competition is associated with long-term maturity debt. Taken together, our study generates the important insight that external governance pressure from the product market acts as an alternate governance mechanism for bank debt monitoring.

Motivated by recent research on the link between geographic proximity and information risk, we examine the impact of geographic location on a firm's ownership structure and cost of equity capital using a large sample of newly privatized firms from 47 countries. We find that the greater the firm's distance from domestic financial centers, the lower foreign investors' participation and ownership. We also find that strong country-level institutions governing investor protection mitigate the information disadvantage of foreign investors. In additional analyses, we find that investors require higher cost of equity capital for distant privatized firms, especially in countries with weak governance institutions. We conclude that geographic location is an important determinant of post-privatization ownership structure and cost of equity capital. Our results are robust to alternative explanations and suggest that improving country-level governance institutions can mitigate the adverse effect of location in remote areas.

ABSTRACT By analyzing a large panel of elections in 55 countries, we show that political uncertainty surrounding elections can affect asymmetric cost responses to activity changes (i.e., cost stickiness). In comparison to non‐election years, we find that the asymmetry in cost behaviors is stronger during election years in regressions that control for other firm‐level and country‐level determinants. In another series of tests, we report strong, robust evidence supporting the predictions that the importance of political uncertainty to cost stickiness is concentrated in countries with sound political and legal institutions. Collectively, the results imply that managers retain slack resources when political uncertainty is high but to be resolved soon.

Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the 2000−2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.

ABSTRACT We extend recent research on the links between political connections and financial reporting by examining the role of auditor choice. Our evidence that public firms with political connections are more likely to appoint a Big 4 auditor supports the intuition that insiders in these firms are eager to improve accounting transparency to convince outside investors that they refrain from exploiting their connections to divert corporate resources. In evidence consistent with another prediction, we find that this link is stronger for connected firms with ownership structures conducive to insiders seizing private benefits at the expense of minority investors. We also find that the relation between political connections and auditor choice is stronger for firms operating in countries with relatively poor institutional infrastructure, implying that tough external monitoring by Big 4 auditors becomes more valuable for preventing diversion in these situations. Finally, we report that connected firms with Big 4 auditors exhibit less earnings management and enjoy greater transparency, higher valuations, and cheaper equity financing.

Abstract We investigate the impact of firm‐level political risk on loan contracting. We find that firm‐level political risk is positively associated with bank loan cost and that this effect is stronger for firms experiencing increased operational uncertainty and higher default risks. Firm‐level political risk also leads to more unfavorable non‐pricing loan terms. To alleviate endogeneity concerns, we use an instrumental variable approach and placebo tests. We further find that political connections and relationship‐based borrowing can attenuate the adverse effect of firm‐level political risk on loan contracting.

Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets. The effect of CDS trading is most pronounced when bond underwriters take a net selling CDS position and for informationally opaque firms. These findings suggest that the hedging and informational roles of CDSs have real effects on corporate debt structure.