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Bank loan approval standards and firms’ accounting conservatism: Evidence from China

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  • Yu, Zhen
  • Luo, Juncheng
  • Fan, Jinqi

Abstract

We examine the correlation between bank loan approval standards and accounting conservatism. Using the bank loan approval index in the People’s Bank of China as measure of loan standard, we show that accounting conservatism improves when bank loan approval standards are tightened. We then conduct further tests to address the endogeneity and robustness, yielding highly consistent results. Finally, both ownership and the banking connection significantly moderate the relationship between bank loan approval standards and accounting conservatism. Our findings provide policy implications on controlling loan approval standards, which may effectively reduce credit risks and promote accounting conservatism.

Suggested Citation

  • Yu, Zhen & Luo, Juncheng & Fan, Jinqi, 2024. "Bank loan approval standards and firms’ accounting conservatism: Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s027553192300226x
    DOI: 10.1016/j.ribaf.2023.102100
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    More about this item

    Keywords

    Loan approval standards; Accounting conservatism; Credit risk; Property rights; Executive bank background;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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