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Does Mandatory Risk Information Disclosure Affect Bank Debt Design? Cross-Country Evidence from Yankee Bond Covenants

34 Pages Posted: 20 Apr 2016  

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Jerry T. Parwada

UNSW Australia Business School, School of Banking and Finance; UNSW Business School; Financial Research Network (FIRN)

Stefan Ruenzi

University of Mannheim - Department of International Finance

Eric K. M. Tan

University of Otago - Department of Accountancy and Finance

Date Written: April 18, 2016

Abstract

This paper investigates the impact of mandatory risk disclosure on the design of foreign bank debt. The Basel II and III Accords require the public disclosure of bank regulatory information under the Pillar 3 or market discipline framework. The new information details bank risk exposures and management strategies, capital adequacy and remuneration practices to enhance market discipline through transparency. We target foreign issuers of US (“Yankee”) to test whether banks domiciled in Pillar 3 regimes increase debt raising in an overseas market and face reduced demand from investors for covenants. Pillar 3 reporting reduces the propensity of banks to raise debt capital abroad, a finding that is attenuated when the banks are domiciled in countries with superior creditor rights protections. Pillar 3 reporting increases the imposition of covenants in Yankee bonds, particularly for banks domiciled in countries with weaker debt law enforcement standards and stronger shareholder rights.

Suggested Citation

Niessen-Ruenzi, Alexandra and Parwada, Jerry T. and Ruenzi, Stefan and Tan, Eric K. M., Does Mandatory Risk Information Disclosure Affect Bank Debt Design? Cross-Country Evidence from Yankee Bond Covenants (April 18, 2016). CIFR Paper No. 107/2016. Available at SSRN: https://ssrn.com/abstract=2766726 or http://dx.doi.org/10.2139/ssrn.2766726

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

Jerry Parwada (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

UNSW Business School ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

UNSW
Sydney, NSW 2052
Australia

HOME PAGE: http://www.firn.org.au

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

Eric Tan

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

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