Loan Sales and Borrowers' Accounting Conservatism

53 Pages Posted: 2 Jan 2014 Last revised: 3 Mar 2021

See all articles by Saiying Deng

Saiying Deng

Kent State University

Yutao Li

University of Lethbridge

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Pei Shao

Dhillon School of Business, University of Lethbridge

Date Written: February 25, 2017

Abstract

We examine whether initial loan sales in the secondary loan market relate to borrowing firms’ accounting conservatism. We find that borrowing firms exhibit a significant decline in accounting conservatism after the initial loan sales. We show that the decline in borrower conservatism is more pronounced for firms borrowing from lenders with lower monitoring incentive and for firms with lower incentive to supply conservatism. The baseline results are robust to a battery of sensitivity tests. Collectively, we provide corroborative evidence that lead lenders’ monitoring incentive is a mechanism through which accounting conservatism is enforced in the private debt market, and that lead lenders play a more prominent role than secondary loan market participants in shaping corporate (conservative) reporting.

Keywords: Loan Sales; Accounting Conservatism; Monitoring Incentives

JEL Classification: G21, G30, L14, M41

Suggested Citation

Deng, Saiying and Li, Yutao and Lobo, Gerald J. and Shao, Pei, Loan Sales and Borrowers' Accounting Conservatism (February 25, 2017). Contemporary Accounting Research, Vol. 35, No. 2, 2018, Available at SSRN: https://ssrn.com/abstract=2373820 or http://dx.doi.org/10.2139/ssrn.2373820

Saiying Deng

Kent State University ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
3306721213 (Phone)

Yutao Li (Contact Author)

University of Lethbridge ( email )

Lethbridge, Alberta T1K5E8
Canada

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Pei Shao

Dhillon School of Business, University of Lethbridge ( email )

345 6 Ave SE
Calgary, Alberta T2G 4V1
Canada
+14033801845 (Phone)
T2G 4V1 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
143
Abstract Views
1,698
rank
252,098
PlumX Metrics