Accounting-Driven Bank Monitoring and Firms’ Debt Structure: Evidence from IFRS 9 Adoption

Xiao Li (), Jeffrey Ng () and Walid Saffar ()
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Xiao Li: School of Accountancy, Central University of Finance and Economics, Beijing, China 100081
Jeffrey Ng: Area of Accounting and Law, The University of Hong Kong, Hong Kong
Walid Saffar: School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong

Management Science, 2024, vol. 70, issue 1, 54-77

Abstract: International Financial Reporting Standard (IFRS) 9 is of practical relevance to banks because it requires intense monitoring of borrowers to record timely loan losses. Using data from 50 countries, we find that accounting-driven bank monitoring due to IFRS 9 adoption reduces firms’ reliance on bank debt relative to public debt. This finding is consistent with firms experiencing more costly bank monitoring after a shift in regulatory reporting that requires banks to monitor borrowers more intensely. In further analyses, we find that the negative effect of IFRS 9 adoption on bank debt reliance is more pronounced with more stringent regulatory supervision of banks, consistent with regulatory stringency exacerbating costly bank monitoring for firms. We also find that the negative effect is stronger when firms can more easily switch from bank debt to public debt financing, consistent with the relevance of switching costs in firms’ decisions to avoid costly bank monitoring.

Keywords: IFRS 9; loan loss recognition; monitoring; debt structure; loan contracting (search for similar items in EconPapers)
Date: 2024
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