Disclosure of regulatory information and creditor pricing decision: evidence from Chinese comment letters

Using Chinese comment letters data, we investigate the impact of the disclosure of comment letters on the cost of debt financing. Empirical results show that when the comment letters are publicly disclosed, creditors charge borrowers significantly higher cost of debt financing. Furthermore, when more questions or risk factors are contained in the comment letters or when professional opinions from a third party are requested to issue, the cost of debt financing is further higher. However, when the comment letters are not publicly disclosed, the cost of debt financing is not affected. In cross-sectional test, we find that the degree of regional market development and the characteristics of debtor both affect the relationship between cost of debt financing and comment letters. Our research not only supplements the literature on the economic consequences of comment letters from the perspective of information effect, but also reveals the importance of public disclosure of regulatory information in semi-strong efficient market.