The Role of Bank Monitoring in Borrowers’ Discretionary Disclosure: Evidence from Covenant Violations
49 Pages Posted: 23 Jul 2012 Last revised: 8 Apr 2014
Date Written: March 31, 2014
Abstract
This study uses covenant violations to provide evidence on how firms make disclosure decisions in the presence of enhanced bank monitoring. Using a regression discontinuity design, I find that firms reduce disclosure following covenant violations. A series of analyses suggest that part of this decline in disclosure reflects a delegation of monitoring to banks by shareholders who consequently demand less disclosure.
Keywords: disclosure, banks, corporate governance, covenant violation, control rights
JEL Classification: M40, G21, G32, D82
Suggested Citation: Suggested Citation
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