Bank Accounting Conservatism and Bank Loan Pricing

Posted: 4 Mar 2015

See all articles by Chu Yeong Lim

Chu Yeong Lim

Singapore Management University - School of Accountancy

Martin Walker

University of Manchester - Manchester Business School

Edward Lee

University of Manchester - Alliance Manchester Business School

Asad Kausar

American University - Kogod School of Business

Date Written: September 30, 2013

Abstract

This paper studies the effects of bank accounting conservatism on the pricing of syndicated bank loans. We provide evidence that banks timelier in loss recognition charge higher spreads. We go on to consider what happens to the relationship between spreads and timeliness in loss recognition during the financial crisis. During the crisis, banks timelier in loss recognition increase their spreads to a lesser extent than banks less timely in loss recognition. These findings are broadly consistent with the argument that conditional accounting conservatism serves a governance role. The policy implication is that banks timelier in loss recognition exhibit more prudent and less pro-cyclical loan pricing behaviour.

Keywords: bank accounting, conservatism

Suggested Citation

Lim, Chu Yeong and Walker, Martin and Lee, Edward and Kausar, Asad, Bank Accounting Conservatism and Bank Loan Pricing (September 30, 2013). Journal of Accounting and Public Policy, Vol. 32, No. 5, 2013, Available at SSRN: https://ssrn.com/abstract=2571852

Chu Yeong Lim

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6568281931 (Phone)

Martin Walker (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

Asad Kausar

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

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