Strategic Information Disclosure and Bank Lending

54 Pages Posted: 12 Nov 2015 Last revised: 16 Jan 2016

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Susie Qi Wang

National University of Singapore ; University of Michigan, Stephen M. Ross School of Business

Date Written: September 1, 2015

Abstract

We study private firms’ strategic disclosure of financial statements in shaping bank lending decisions and structuring debt contracts in informationally opaque credit markets. Using a unique dataset of loan applications by small businesses to a large bank, we document that the availability of financial statement disclosures by small businesses increases their credit access. Results from debt contract design analyses based on details of booked loans document that such disclosures are significant in pricing loans and in determining collateral requirements, as well as influencing the bank’s ex post monitoring of loan performance. For all these analyses, we also use a staggered regulatory change across states, in disclosure requirements for publicly held companies, as an exogenous shock, and demonstrate the impact on various aspects of small business lending due to private firms’ disclosure choices in response to such disclosure externalities from the public sector.

Keywords: Small business lending, private information, strategic disclosure, bank lending, financial accounting information

JEL Classification: G21, L11, L14, D44

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Wang, Susie Qi, Strategic Information Disclosure and Bank Lending (September 1, 2015). 2016 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2689574 or http://dx.doi.org/10.2139/ssrn.2689574

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Susie Qi Wang (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 119245
Singapore

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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