13 Financial Accounting 6: Bank
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ItemBanks and their Supranational Monitors — Do Monitoring Trustees Impact the Transparency of Banks?( 2020-08-15)The last financial crisis saw large amounts of taxpayers' money used to save banks. Given the incentives of banks to offer an obfuscated view of their financial health, I investigate in this paper whether banks that receive state aid become more transparent when a supranational monitoring trustee (MT) is assigned to the bank, compared to banks without these monitors. Using a hand-collected sample of European banks that obtained state aid at different times in different countries, the staggered introduction of the MTs allows for a difference in differences analysis of the impact of the MT on financial reporting transparency. The MTs presence is associated with higher levels of loan loss provisions and loan loss provisions are recognized in a timelier manner. Banks with MTs are also more likely to restate their financial statements. In a subsample analyses of listed banks, credit risk disclosures of banks with MTs do not differ significantly from banks without MTs. However, banks that disclose the presence of an MT in their annual reports tend to have significantly lower credit risk disclosure scores than the banks that do not disclose their presence.
ItemWhat's my Share? The Use of Borrower Accounting Information by Loan Syndicate Participants( 2020-08-09)Participant lenders in syndicated loans depend on information collected by the lead lender for borrower screening and monitoring, as the lead lender is primarily responsible for ex-ante due diligence in evaluating borrowers. This gives rise to both moral hazard and adverse selection concerns within the syndicate. We investigate whether participant lenders independently acquire borrower accounting reports to help mitigate these information frictions. We find that participant lenders' SEC EDGAR searches of borrower filings are positively associated with their shares of the syndicated loan, consistent with mitigation of intra-syndicate information asymmetry. This association is stronger for current period filings and 10-K/Qs, and weaker when the lead lender has a better reputation and when the borrower's information environment is richer. This novel direct evidence enhances our understanding of the role of accounting information in facilitating deal formation in syndicated loan markets.