Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/59247

Financial Statement Complexity and Bank Lending

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Title:Financial Statement Complexity and Bank Lending
Authors:Chakraborty, Indraneel
Leone, Andrew
Minutti-Meza, Miguel
Phillips, Matthew
Keywords:financial statement complexity
capital structure
debt contracting
Date Issued:01 Aug 2018
Abstract:Recent studies and anecdotal evidence suggest that investors struggle to process complex financial reports. Existing theory and evidence demonstrate that banks not only have unique advantages in acquiring information, relative to equity and public debt investors, but also can impose contractual terms to mitigate information frictions. We investigate whether financial statement complexity is associated with firms' reliance on bank financing and with the terms of bank loans (i.e., the amount and rate of the loan, along with covenants and collateral). We focus on two dimensions of complexity that capture the volume and presentation of financial information: 10-K length and readability. We find that complexity is positively associated both with firms' reliance on bank financing and with banks increasing their level of screening, rationing their credit supply, and imposing tighter covenants. Our results suggest that banks continue to play their role as informed capital providers in a changing economy, characterized by growing financial statement complexity and innovations in banks' business models.
URI:http://hdl.handle.net/10125/59247
Appears in Collections: 16 Financial: Debt and derivative instruments/Creditor protection/Risk management


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