Financial statements not required

Michael Minnis, Andrew Sutherland and Felix W. Vetter

Journal of Accounting and Economics, 2024, vol. 78, issue 2

Abstract: Using a dataset covering 3 million commercial borrower financial statements, we document a substantial, nearly monotonic decline in banks’ use of attested financial statements (AFS) in lending over the past two decades. Two market forces help explain this trend. First, technological advances provide lenders with access to a growing array of borrower information sources that can substitute for AFS. Second, banks are increasingly competing with nonbank lenders that rely less on AFS in screening and monitoring. Our results illustrate how technology adoption and changes in credit market structure can render AFS less efficient than alternative information sources for screening and monitoring.

Keywords: Banks; Lending standards; Financial statements; Auditing; Private firms; SME lending; Nonbank lending; Fintech (search for similar items in EconPapers)
JEL-codes: D82 G21 G23 G30 M41 M42 O31 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Financial Statements not Required (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:78:y:2024:i:2:s0165410124000624

DOI: 10.1016/j.jacceco.2024.101732

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