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

Vashishtha, Rahul, The Role of Bank Monitoring in Borrowers’ Discretionary Disclosure: Evidence from Covenant Violations (March 31, 2014). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2115637 or http://dx.doi.org/10.2139/ssrn.2115637

Rahul Vashishtha (Contact Author)

Duke University ( email )

Durham, NC 27708-0204
United States
919-660-7755 (Phone)
91-660-7971 (Fax)

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