The effect of bank governance on borrowers’ accounting choices

Kang Sung Hur and in Tae Hwang

Asia-Pacific Journal of Accounting & Economics, 2023, vol. 30, issue 6, 1417-1443

Abstract: This study analyzes the effect of bank CEO appointment structure and tenure on borrowers’ accounting practices and earnings management. Drawing on agency theory, we posit that agency costs are high for banks that frequently change CEOs and those that appoint CEOs from external sources. The results indicate firms that borrow from banks with high agency costs adopt less conservative accounting practices and employ real activities earnings management when deteriorating management conditions lead to negative cash flow. This study provides a strong empirical foundation for future research by verifying that appointment structure and tenure of bank CEOs affect borrowers’ accounting choices.

Date: 2023
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DOI: 10.1080/16081625.2021.1872032

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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