The voluntary adoption of International Financial Reporting Standards and loan contracting around the world

Jeong-Bon Kim (), Judy S. L. Tsui () and Cheong H. Yi ()
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Jeong-Bon Kim: City University of Hong Kong
Judy S. L. Tsui: Hong Kong Polytechnic University
Cheong H. Yi: Hong Kong Polytechnic University

Review of Accounting Studies, 2011, vol. 16, issue 4, No 4, 779-811

Abstract: Abstract Using a sample of non-U.S. borrowers from 40 countries during 1997 through 2005, this paper investigates the effect of the voluntary adoption of International Financial Reporting Standards (IFRS) on price and nonprice terms of loan contracts and loan ownership structure in the international loan market. Our results reveal the following. First, banks charge lower loan rates to IFRS adopters than to non-adopters. The difference in loan rates in excess of a benchmark rate between the two groups is about 20 basis points for all loans and nearly 31 basis points for London Interbank Offered Rate (LIBOR)-based loans. Second, banks impose more favorable nonprice terms on IFRS adopters, particularly less restrictive covenants. We also provide evidence suggesting that banks are more willing to extend credit to IFRS adopters through larger loans and longer maturities. Finally, IFRS adopters attract significantly more foreign lenders participating in loan syndicates than non-adopters.

Keywords: International Financial Reporting Standards (IFRS); Loan spread; Collateral; Debt covenant; Syndicate structure; Foreign banks (search for similar items in EconPapers)
JEL-codes: G21 G3 G34 M41 N20 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s11142-011-9148-5

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