Bank Accounting and Cross-border Borrowing: Evidence from IFRS 9 Adoption

Abstract

By enabling domestic borrowers to access international financing, cross-border borrowing provides an opportunity for them to adapt to changes in domestic banking conditions, e.g., bank accounting. Using a difference-in-differences analysis of syndicated loans from 62 countries, this study finds that, after a country adopts IFRS 9, domestic borrowers increase cross-border borrowing from banks in non-adopting countries. The increase is the highest in countries with a large post-adoption decrease in bank credit, consistent with an IFRS 9-driven reduction in domestic credit supply, inducing borrowers to rely more on foreign lenders. This increase in cross-border borrowing is concentrated among borrowers facing more stringent domestic bank monitoring owing to IFRS 9 adoption, suggesting that this monitoring encourages borrowers to choose foreign lenders. Finally, the increase is more pronounced in countries where IFRS 9 adoption is more likely to increase banks’ loan loss provisions, and among borrowers who have more cross-border borrowing experience and share linguistic closeness with foreign lenders, or lack access to domestic bond markets. This study makes a novel contribution by showing that differences in bank accounting across countries can affect firms’ cross-border borrowing.

Keywords: IFRS 9, loan loss recognition, cross-border borrowing, loan contracting

JEL Classification: G21, M41, G28