Discussion of “Is financial reporting shaped by equity markets or debt markets? An international study of timeliness and conservatism”

Using country-level data, Ball et al. (2008, Review of Accounting Studies) (BRS hereafter) demonstrate that debt-market (equity-market) size is (is not) positively associated with measures of timely loss recognition and asymmetric timely loss recognition. They argue that these results imply that debt holders—not equity holders—are the primary source of demand for timely accounting reports. They also argue that their results support the notion that the “costly contracting” school of thought is more descriptive than the “value relevance” perspective and that general purpose financial statements are of questionable value. I argue that, while their results are novel and relevant to both academia and practice, their conclusions are premature for at least three reasons (1) their research design is inefficient and may lead to biased inferences, (2) additional evidence on the relation between timeliness and the benefits of leverage as well as debt-instrument attributes is needed, and (3) factors other than timeliness also impact the quality of financial reporting and thus may be of value to equity holders or other interested parties.