Borrowers’ Accounting Information and Banks’ Lending Decisions

48 Pages Posted: 26 Jul 2016 Last revised: 27 Jul 2016

Date Written: June 1, 2016


I examine the relation between borrowers’ accounting information and banks’ lending decisions, measured in terms of nonperforming loans (NPLs) and pooling of borrowers (i.e., the inability to price-differentiate borrowers). If the information contained in borrowers’ financial statements affects the degree of bank screening and monitoring, banks’ lending decisions will be a function of borrowers’ accounting information. If banks can use their information advantage to overcome any screening and monitoring need, banks’ lending decisions will be independent of borrowers’ accounting information. Using an international sample of banks and loan contracts, I find that banks have impaired screening and monitoring abilities after borrowers are required to change their accounting numbers, i.e., to switch from their local accounting rules (local GAAP) to International Financial Reporting Standards (IFRS), suggesting that borrowers’ financial statements are a nontrivial part of banks’ information set. The results are stronger in countries whose accounting rules differed the most compared to IFRS, in banks with higher proportions of loans granted to borrowers using IFRS, and in banks less familiar with the new standards, suggesting that the effect is not only due to the content of the new standards but also to nontrivial learning costs. The effect is also robust to change in countries’ enforcement levels, although weaker.

Keywords: Lending Decisions, Banks, Monitoring, Screening, Information Asymmetry, IFRS, Non-Performing Loans

JEL Classification: G14, G21, M41, M48

Suggested Citation

Gallimberti, Carlo Maria, Borrowers’ Accounting Information and Banks’ Lending Decisions (June 1, 2016). Available at SSRN: or

Carlo Maria Gallimberti (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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