Wooseok Choi
Michigan State University
Abstract: This study examines the effects of a firm's debt financing decision on the informativeness of the balance sheet and income statement. It specifically examines the association between a firm¡¯s bank dependence and the value relevance of the balance sheet and income statement. Focusing on relatively small businesses, I find that the higher a firm¡¯s bank dependence is, the greater (lesser) the weight that is placed on the income statement (balance sheet) in explaining firm value. The findings of this paper suggest that the relative usefulness of the balance sheet and income statement varies with a firm¡¯s bank dependence, indicating that the value relevance of the income statement and balance sheet is a function of a firm¡¯s debt financing decision.
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