The role of bank monitoring in borrowers׳ discretionary disclosure: Evidence from covenant violations

Vashishtha, Rahul

doi:10.1016/j.jacceco.2014.04.002

Cited by 95 publications

(51 citation statements)

References 58 publications

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“…This hypothesis is consistent with the findings of Vashishtha [] that, as a result of an increase in lender monitoring following debt covenant violations, shareholders decrease their demand for information, leading to a reduction in the borrower's voluntary disclosures. However, we acknowledge that a decline in lender monitoring and the consequent information demand from shareholders need not always follow upon CDS initiation.…”

Section: Motivation Related Literature and Hypotheses Developmentsupporting

confidence: 91%

Credit Default Swaps and Managers’ Voluntary Disclosure

Kim

Shroff

Vyas³

et al. 2018

J of Accounting Research

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We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms’ voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads shareholders to intensify their monitoring and demand increased voluntary disclosure from managers. Consistent with this expectation, we find that managers are more likely to issue earnings forecasts and forecast more frequently when traded CDSs reference their firms. We further find a stronger impact of CDS availability on firm disclosure when (1) lenders have higher ability and propensity to hedge credit risk using CDSs, and (2) lender monitoring incentives and monitoring strength are weaker. Consistent with an increase in shareholder demand for public information disclosure induced by a reduction in lender monitoring, we find a stronger effect of CDSs on voluntary disclosure for firms with higher institutional ownership and stronger corporate governance. Overall, our findings suggest that firms with traded CDS contracts enhance their voluntary disclosure to offset the effect of reduced monitoring by CDS‐protected lenders.

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Section: Motivation Related Literature and Hypotheses Developmentsupporting

confidence: 91%

Credit Default Swaps and Managers’ Voluntary Disclosure

Kim

Shroff

Vyas³

et al. 2018

J of Accounting Research

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“…It can vary depending on the ownership of the companies and the management system which is similarly linked to concerns about political cost, labour union agitation and contractual covenants (Cannizzaro & Weiner, 2015;Khalil & Simon, 2014;Watts & Zimmerman, 1986). Vashishtha (2014) found that companies are more interested in secrecy and maintain some reservation in adopting certain accounting standards when a violation of contractual International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 covenants occurs. Further, an earlier study by Wallace (1987) reported how management type determines whether a company maintains secrecy in financial statements and how the Nigerian socioeconomic environment encourages such practice owing to the weak legal system.…”

Section: Transparency Versus Secrecy Dimensionmentioning

confidence: 99%

The Effects of Organisational Culture on IFRS Adoption: Evidence from Nigerian’ Companies

Edeigba

Gan²,

Amenkhienan³

2018

ijafr

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This study investigates the underlying factors contributing to the International Financial Reporting Standards (IFRS) adoption in Nigeria. The diversity of responses to IFRS adoption is a phenomenon that requires empirical investigation to understand the reasons why some companies adopt IFRS other do not. Previous studies have investigated preparers of financial statements’ compliance with IFRS. However, there is a dearth of research on the influence of cultural factors on IFRS adoption. Little has heretofore has been done to examine cultural variables as determinants of IFRS adoption. This study applies a self-administered survey instrument to elicit data from four major cities in Nigeria. The analysis involves applied logistic regression to estimate the relationship between the covariates and the companies’ decisions to adopt IFRS. The results indicate companies’ professionalism, transparency, flexibility, secrecy, uniformity and statutory control are significant factors impacting IFRS adoption at different magnitudes. For example, a company that considers IFRS will increase the level of financial statements transparency is more likely to maintain some levels of secrecy. The study identifies that IFRS adoption can only be successful when accountants develop the relevant technical expertise in IFRS requirements prior to the implementation. Consequently, there is a need for more practical training in IFRS accounting valuation, recognition, measurement and disclosure of financial information to users of financial statements. The diversity in responses to IFRS adoption, where some companies adopt and others show resistance to IFRS requirements has been a phenomenon that requires empirical investigation to understand the rationale. Though some studies have investigated companies’ compliance with accounting regulations in Nigeria, there is limited research on factors influencing IFRS adoption. A consequence is that efforts to come up with effective policies to enhance IFRS adoption and obtain compliance status for Nigerian companies are constrained. The objective is to contribute to initiatives aimed at assuring foreign investors of reliability of IFRS financial statements prepared by Nigerian companies.

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“…Bank monitoring represents one of the most important issues in the finance literature. For at least three decades researchers have examined: (1) why banks dedicate considerable resources to monitoring activities (e.g., Fama ; Chan, Greenbaum, and Thakor ; Diamond , ; Qi ; Boot and Thakor ), (2) what impact bank monitoring has on borrower firms (e.g., Ahn and Choi ; Vashishtha ), (3) why bank monitoring intensity varies across borrower firms (Blackwell and Winters ), and (4) what the link is between corporate governance and monitoring (Byers, Fields, and Fraser ).…”

Section: Monitoring Metrics: a Brief Reviewmentioning

confidence: 99%

Monitoring in Small Business Lending: How to Observe the Unobservable

Sampagnaro

Meles

Verdoliva

2015

J of Financial Research

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In this article we investigate the determining factors of bank monitoring in small business lending. Unlike previous studies that rely on proxies of a bank’s monitoring effort, we use a large and unique data set that includes the number of monitoring contacts per year between a European bank and a large number of small firms from 2009 to 2012. Our main results highlight that the frequency of a bank’s monitoring effort is negatively related to the firm’s reputation and the strength of the bank–firm relationship, and positively related to the bank–borrower proximity and the borrower’s credit risk leve

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The role of bank monitoring in borrowers׳ discretionary disclosure: Evidence from covenant violations

Cited by 95 publications

References 58 publications

Credit Default Swaps and Managers’ Voluntary Disclosure

Credit Default Swaps and Managers’ Voluntary Disclosure

The Effects of Organisational Culture on IFRS Adoption: Evidence from Nigerian’ Companies

Monitoring in Small Business Lending: How to Observe the Unobservable

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