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How do changes in financial reporting standards affect relationship lending?

Author

Listed:
  • Daniel Dejuan-Bitria

    (BANCO DE ESPAÑA)

  • Wayne R. Landsman

    (BANCO DE ESPAÑA)

  • Sergio Mayordomo

    (KENAN-FLAGLER BUSINESS SCHOOL, UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL)

  • Irene Roibás

    (BANCO DE ESPAÑA)

Abstract

This paper analyses the effect of the expected credit loss model under IFRS 9 on relationship lending in Spain. We document that relationship exclusivity between a bank and a firm has a positive effect on the growth of credit. However, this positive effect is significantly reduced after implementation of IFRS 9. We estimate that in 2018 the negative impact of IFRS 9 on relationship lending led to a reduction in credit to Spanish non-financial firms of 2.8% of their total outstanding credit, suggesting a sizeable effect on the availability of credit. For borrowers with Stage 1 loans, we show that the new regulation has a negative impact on relationship lending at firms with a higher probability of default and whose credit quality has deteriorated. Our findings are consistent with a change in the incentives that underpin relationship lending.

Suggested Citation

  • Daniel Dejuan-Bitria & Wayne R. Landsman & Sergio Mayordomo & Irene Roibás, 2024. "How do changes in financial reporting standards affect relationship lending?," Working Papers 2437, Banco de España.
    • Handle: RePEc:bde:wpaper:2437
    DOI: https://doi.org/10.53479/37892
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    References listed on IDEAS

    as
    1. Jorge Abad & Javier Suarez, 2018. "The Procyclicality of Expected Credit Loss Provisions," Working Papers wp2018_1806, CEMFI.
    2. Bernardo Morais & Gaizka Ormazabal & José-Luis Peydró & Mónica Roa & Miguel Sarmiento, 2020. "Forward Looking Loan Provisions: Credit Supply and Risk-taking," Working Papers 1199, Barcelona School of Economics.
    3. Morais, Bernardo & Ormazabal, Gaizka & Peydro, J.L. & Roa, Monica & Sarmiento Paipilla, Miguel, 2020. "Forward Looking Loan Provisions : Credit Supply and Risk-Taking," Other publications TiSEM 103b659e-404f-4656-adad-6, Tilburg University, School of Economics and Management.
    4. Germán López‐Espinosa & Gaizka Ormazabal & Yuki Sakasai, 2021. "Switching from Incurred to Expected Loan Loss Provisioning: Early Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 59(3), pages 757-804, June.
    5. Morais, Bernardo & Ormazabal, Gaizka & Peydro, J.L. & Roa, Monica & Sarmiento Paipilla, Miguel, 2020. "Forward Looking Loan Provisions : Credit Supply and Risk-Taking," Other publications TiSEM fe99a48f-f94a-41d8-bf3f-3, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    relationship lending; IFRS 9; credit; probability of default;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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