Adoption of IAS/IFRS, Liquidity Constraints, and Credit Rationing: The Case of the European Banking Industry

Posted: 9 Jun 2020

See all articles by Hervé Alexandre

Hervé Alexandre

Université Paris-Dauphine, PSL Research University; Université Paris Dauphine

Date Written: 2017

Abstract

With imperfections, theory suggests that banks dependent on external resources have greater difficulty refinancing their lending than banks with a lot of internal resources. Hence, there is an increased risk of credit rationing to these institutions. In this context, this empirical study tests the hypothesis that the adoption of the IAS/IFRS, deemed as of superior quality for economic decision-making, results in an increase in the amount of credit offered by banks with liquidity constraints. For a sample of European banks over the period of 2003–2008, we find that results are only partly consistent with this hypothesis. The results depend on the measure of the constraint, the bank size, and the enforcement regime. Our results show that the adoption (both voluntary and mandatory) of the IAS/IFRS lead to an increase in the credit supply only for small and constrained banks. These results are important with respect to the goal of banking stability and with the scarcity of credit observed in Europe since the financial crisis.

Keywords: Banks, IAS/IFRS, Liquidity, Credit Rationing

JEL Classification: G21,M41

Suggested Citation

Alexandre, Hervé, Adoption of IAS/IFRS, Liquidity Constraints, and Credit Rationing: The Case of the European Banking Industry (2017). Quarterly Review of Economics and Finance, Vol. 63, 2017, Université Paris-Dauphine Research Paper No. 3601597, Available at SSRN: https://ssrn.com/abstract=3601597

Hervé Alexandre (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Université Paris Dauphine ( email )

Place du Maréchal de Lattre de Tassigny
Paris Cedex 16, 75775
France

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