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

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

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. Suivi bancaire et qualité de l'information financière : le cas du financement sur créances clients À partir de nouvelles données relatives au financement sur créances clients, les auteurs étudient l'incidence des clauses restrictives des contrats de prêt liées au rapport de classement chronologique des créances clients sur la qualité de l'information financière relative à ces créances communiquée par ces emprunteurs. Leur analyse a pour but de mettre en évidence un canal de communication dont se servent les prêteurs pour obtenir de l'information privilégiée et de déterminer si l'acquisition d'information par les prêteurs influe sur la qualité de l'information financière des emprunteurs. Les auteurs constatent que les emprunteurs soumis à l'obligation de produire ces rapports chronologiques (les sociétés du groupe test), comparativement à ceux qui n'y sont pas soumis (les sociétés du groupe de contrôle), haussent sensiblement la qualité de l'information financière relative aux créances clients après l'ouverture des prêts. Le changement observé dans la qualité de l'information financière est plus marqué lorsque les emprunteurs ont un faible pouvoir de négociation. Les résultats de l'étude viennent appuyer l'hypothèse selon laquelle l'accès du prêteur à l'information influe sur la qualité de l'information financière communiquée par l'emprunteur.

Suggested Citation

  • Richard Frankel & Bong Hwan Kim & Tao Ma & Xiumin Martin, 2020. "Bank Monitoring and Financial Reporting Quality: The Case of Accounts‐Receivable‐Based Loans," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2120-2144, December.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:4:p:2120-2144
    DOI: 10.1111/1911-3846.12595
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    2. Chen, Jing & Liu, Xinghe & Ou, Fenghao & Lu, Meiting & Wang, Peipei, 2023. "Green lending and stock price crash risk: Evidence from the green credit reform in China," Journal of International Money and Finance, Elsevier, vol. 130(C).
    3. Chen, Dong & Li, Yi & Lu, Jiani & Li, Chenming, 2024. "Do international tax treaties govern financial report quality?," Research in International Business and Finance, Elsevier, vol. 69(C).

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