How Does Financial Reporting Regulation Affect Firms’ Banking?

The Review of Financial Studies, Volume 31, Issue 4, 1 April 2018, Pages 1265-1297

95 Pages Posted: 25 Jul 2015 Last revised: 1 Jul 2018

See all articles by Matthias Breuer

Matthias Breuer

Columbia University

Katharina Hombach

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Maximilian A. Müller

WHU - Otto Beisheim School of Management

Date Written: September 14, 2017

Abstract

We examine the effects of financial reporting regulation on firms’ banking. Exploiting discontinuous public disclosure and auditing requirements assigned to otherwise similar small and medium-sized private firms, we document that financial reporting regulation reduces firms’ reliance on concentrated and local bank relationships and increases banks’ reliance on firms’ financial reporting, consistent with a shift in firms’ banking from relationship toward transactional approaches. Our evidence suggests that financial reporting regulation substitutes for banks’ information production role by burdening firms with the disclosure and auditing of their financial statements, consistent with institutional complementarities between reporting and banking systems.

Keywords: financial intermediation, financial reporting, public disclosure, auditing, competition

JEL Classification: M41, M48, G38

Suggested Citation

Breuer, Matthias and Hombach, Katharina and Müller, Maximilian A., How Does Financial Reporting Regulation Affect Firms’ Banking? (September 14, 2017). The Review of Financial Studies, Volume 31, Issue 4, 1 April 2018, Pages 1265-1297. Available at SSRN: https://ssrn.com/abstract=2635047 or http://dx.doi.org/10.2139/ssrn.2635047

Matthias Breuer (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Katharina Hombach

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Adickesallee 32
Frankfurt, 60322
Germany

Maximilian A. Müller

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
596
rank
43,447
Abstract Views
2,672
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information