The Effects of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption

59 Pages Posted: 19 Oct 2015

See all articles by Tai-Yuan CHEN

Tai-Yuan CHEN

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting

Shiheng Wang

Hong Kong University of Science & Technology (HKUST)

Chun Yao

National Chengchi University (NCCU)

Date Written: October 19, 2015

Abstract

This study examines the effects of the mandatory adoption of International Financial Reporting Standards (IFRS) on the contract terms of bank loans in a global setting. Using a difference-in-differences design based on 26,474 bank loans in 31 countries during the 2000-2011 period, we find that borrowers who mandatorily adopt IFRS experience an increase in interest rates, a reduction in the use of accounting-based financial covenants, an increase in the likelihood that a loan is collateralized, a reduction in loan maturity and an increase in the fraction of a loan retained by lead arrangers. These findings are robust to the removal of the 2008 financial crisis from our analysis as well as to the matching of IFRS and non-IFRS borrowers on various country- and firm-level characteristics. Furthermore, we find that these changes are more pronounced for borrowers with greater financial reporting changes as well as those with poorer accounting quality after IFRS adoption.

Keywords: Information asymmetry; accounting quality; mandatory IFRS adoption; bank loan contracts

JEL Classification: G15; G21; F34; M41

Suggested Citation

Chen, Tai-Yuan and Chin, Chen-lung and Wang, Shiheng and Yao, Chun, The Effects of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption (October 19, 2015). Journal of International Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2675959

Tai-Yuan Chen

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology ( email )

Clear Water Bay
Kowloon
Hong Kong

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan, Taipei
Taiwan

Shiheng Wang (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clear Water Bay
Kowloon, 999999
Hong Kong
(852) 2358 7570 (Phone)
(852) 2358 1693 (Fax)

Chun Yao

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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

Paper statistics

Downloads
354
Abstract Views
1,717
Rank
175,382
PlumX Metrics