Financial Statements not Required

Michael Minnis, Andrew Sutherland and Felix Vetter

MPRA Paper from University Library of Munich, Germany

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 a novel implication of positive accounting theory: technology adoption and changes in credit market structure can render AFS less efficient for screening and monitoring, and reduce lenders’ demand for them.

Keywords: banks; lending standards; financial statements; auditing; SME lending; nonbank lending; fintech (search for similar items in EconPapers)
JEL-codes: M40 M41 M42 (search for similar items in EconPapers)
Date: 2023-04-01
New Economics Papers: this item is included in nep-acc, nep-mfd and nep-pay
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Citations: View citations in EconPapers (2)

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Journal Article: Financial statements not required (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117472

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