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

Richard Frankel, Bong Hwan Kim, Tao Ma, Xiumin Martin

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)2120-2144
Number of pages25
JournalContemporary Accounting Research
Volume37
Issue number4
DOIs
StatePublished - Dec 1 2020

Keywords

  • aging report
  • bank scrutiny
  • borrowing-base loan
  • write-off

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