Bank Monitoring and Financial Reporting Quality: The Case of Accounts-Receivable-Based Loans

44 Pages Posted: 25 Feb 2020

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

Bong Hwan Kim

Seoul National University - Graduate School of Public Administration

Tao Ma

Texas Tech University

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 4, 2020

Abstract

Using novel receivable-based-loan data, we study the effect of aging-report loan covenants on borrowers’ accounts receivable reporting quality. Our purpose is to highlight a channel that lenders use to obtain private information and to understand whether lenders’ information acquisition affects the financial reporting quality of borrowers. Compared to receivable-based borrowers without aging-report requirements (control firms), borrowers with such requirements (test firms) increase their receivable reporting quality significantly after loan initiations. The shift in reporting quality is more pronounced when borrowers have weak bargaining power. Our results lend support to the argument that lender information access affects borrowers’ reporting quality.

Keywords: Bank Scrutiny, Borrowing-Base Loan, Aging Report, Write-Off

JEL Classification: G14, G21, G24, G28

Suggested Citation

Frankel, Richard M. and Kim, Bong Hwan and Ma, Tao and Martin, Xiumin, Bank Monitoring and Financial Reporting Quality: The Case of Accounts-Receivable-Based Loans (February 4, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3532028 or http://dx.doi.org/10.2139/ssrn.3532028

Richard M. Frankel

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Bong Hwan Kim

Seoul National University - Graduate School of Public Administration ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Tao Ma

Texas Tech University ( email )

Box 42101
Lubbock, TX 79409-2101
United States

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

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