Abstract

As a performance indicator, net debt conveys information to assess firms’ gearing level and the ability to service
the outstanding borrowings. Moreover, net debt is frequently used in debt covenants in order to reduce
information asymmetry between borrowers and lenders and to enhance the efficiency of the debt contracting
process.

Notwithstanding the decision usefulness and the contracting relevance associated to net debt disclosure,
contrasting positions have been suggested concerning the notion of- and the information about the net financial
position. In particular, 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, we compare the content of the net debt
disclosure produced in a non-regulated environment with that delivered within a mandatory disclosure regime.
Our 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, the multivariate analysis shows the role that regulation could play as a
low-cost commitment device.

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