Market Incentives and Regulators' Activity Shaping Financial Information: An Analysis of the Net Debt Disclosure in Italy.
As a performance indicator, net debt conveys information to assess firms' gearing level and the ability to service the outstanding borrowings. Notwithstanding the decision usefulness and the contracting relevance associated to net debt disclosure, contrasting positions have been suggested concerning the notion of information about the net financial position. But a regulated/narrow approach contrasts an unregulated/principle-based one, and both the academic literature and accounting profession are far from being unanimous on this issue. By examining financial statements of 60 Italian listed companies, the authors compare the content of the net debt disclosure produced in a non-regulated environment with that delivered within a mandatory disclosure regime. The analysis shows that the adoption of a mandatory disclosure regime has only slightly enhanced the comparability of net debt disclosure and highlights the opportunistic nature of the disclosure about the net financial position. At the same time, a multivariate analysis shows the role that regulation could play as a low-cost commitment device.