Abstract
ABSTRACT The nexus between corporate disclosure and credit market development as well as whether the nexus is sensitive to the income classification of countries is not well delineated in the empirical literature. The objective of this paper is to interrogate these issues. In addressing these important issues, we rely on a panel of 122 countries and deploy a battery of econometric techniques. Generally, we find that corporate disclosure promotes credit market development. The results from the analysis of subsamples suggest that the effect of corporate disclosure on credit market development is sensitive to creditor rights protection and the income status of a country. In particular, there is evidence that the interaction between corporate disclosure and creditor rights protection significantly benefits the credit markets only in upper-middle-income countries.
Highlights
In this paper, we use data from 122 countries to answer two related questions
Does corporate disclosure1 significantly influence credit market development2? Second, does the effect of corporate disclosure on credit market development differ according to the income groups of countries? Given the known link between credit market development and economic growth, it is crucial to ask these questions because answers to them have the potential to shape economic policy
Information asymmetry refers to an imbalance of information between the lender and the prospective borrower in which the latter uses their superior information to the detriment of the former
Summary
We use data from 122 countries to answer two related questions. First, does corporate disclosure significantly influence credit market development2? Second, does the effect of corporate disclosure on credit market development differ according to the income groups of countries? Given the known link between credit market development and economic growth, it is crucial to ask these questions because answers to them have the potential to shape economic policy.The literature documents that the development of credit markets (banking sector) drives economic growth positively (Beck & Levine, 2004). Does corporate disclosure significantly influence credit market development2? Does the effect of corporate disclosure on credit market development differ according to the income groups of countries? Given the known link between credit market development and economic growth, it is crucial to ask these questions because answers to them have the potential to shape economic policy. Information asymmetry refers to an imbalance of information between the lender and the prospective borrower in which the latter uses their superior information to the detriment of the former. It creates adverse selection and moral hazard problems that drive credit risk with a possible financial crisis. It creates adverse selection and moral hazard problems that drive credit risk with a possible financial crisis. Trombetta and Imperatore (2014) define financial crisis as “an interruption in the normal functioning of
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