The Effects of Mandatory IFRS Reporting on the Syndicated Loan Market

Posted: 3 Aug 2011

See all articles by Chen‐Lung Chin

Chen‐Lung Chin

National Chengchi University

Chun Yao

National Chengchi University (NCCU)

Date Written: August 1, 2011

Abstract

In this paper, we examine how the mandatory adoption of International Financial Reporting Standards (IFRS) affects ownership structure and debt covenants in the syndicated loan market. We hypothesize and document that the proportion of the loan retained by syndicate lead arrangers increases after a borrower adopts mandatory IFRS reporting. Further, we document that foreign lenders are relatively less likely to be involved in syndicated loan deals after the adopting of mandatory IFRS reporting. Finally, we find that syndicate lenders are less likely to use financial covenants in debt agreements after the mandatory IFRS adopting. Overall, these results are in line with the “surface comparability” argument by Schipper (2003). Specifically, the adoption of a principles-based accounting system (e.g., IFRS), characterized by limited interpretation and implementation guidance, will increase the difference in professional judgment among parties to debt contracts, which in turn reduces lenders’ and borrowers’ demand for accounting information in signing debt contracts.

Keywords: International Financial Reporting Standards (IFRS), Syndicated Loans, Debt Contracts, Covenants, Home Bias

JEL Classification: G15, G30, M41

Suggested Citation

Chin, Chen Lung and Yao, Chun, The Effects of Mandatory IFRS Reporting on the Syndicated Loan Market (August 1, 2011). Available at SSRN: https://ssrn.com/abstract=1903803

Chen Lung Chin (Contact Author)

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Chun Yao

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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