The Effect of Information Opacity and Accounting Irregularities on Personal Lending Relationships: Evidence From Lender and Manager Co-migration

79 Pages Posted: 8 Dec 2015 Last revised: 5 Oct 2018

See all articles by Urooj Khan

Urooj Khan

Columbia Business School - Accounting, Business Law & Taxation

Xinlei Li

Hong Kong University of Science and Technology

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Regina Wittenberg Moerman

University of Southern California

Date Written: June 4, 2018

Abstract

We examine how personal lending relationships between lenders and managers are affected by information and accounting environments of borrowing firms. We address this question by exploring whether, following managerial turnover, lenders migrate with the manager from the firm where a relationship developed (origin firm) to the manager’s new firm (destination firm). We find that the opacity of the external information environment of the destination firm significantly increases the probability of lenders’ co-migration, while accounting irregularities at both the destination and origin firms decrease it. We also show that co-migration is affected by a lender’s characteristics, such as monitoring efficiency, industry concentration of the loan portfolio and loan growth. We further find that the relation between co-migration and a lender’s monitoring efficiency depends on the information and accounting environments of the origin and destination firms. A lender’s monitoring efficiency increases its co-migration probability when a manager moves to an opaque firm but not when she moves to a transparent one. When the destination or origin firm experiences accounting irregularities, even lenders with strong monitoring capabilities are mostly reluctant to continue their relationship with a migrating manager.

Keywords: Bank lending, lender-manager relationship, debt contracting, information environment, accounting irregularity

JEL Classification: D81, D82, G20, G21, G32, M41

Suggested Citation

Khan, Urooj and Li, Xinlei and Williams, Christopher D. and Wittenberg Moerman, Regina, The Effect of Information Opacity and Accounting Irregularities on Personal Lending Relationships: Evidence From Lender and Manager Co-migration (June 4, 2018). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2700514 or http://dx.doi.org/10.2139/ssrn.2700514

Urooj Khan (Contact Author)

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Xinlei Li

Hong Kong University of Science and Technology ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Christopher D. Williams

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

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

Regina Wittenberg Moerman

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
303
Abstract Views
2,494
rank
103,856
PlumX Metrics