Bank Lending and Accounting Recognition: The Case of Aging Report Requirement-Peking University HSBC Business School(PHBS)

Bank Lending and Accounting Recognition: The Case of Aging Report Requirement

2015-11-10 15:23:21

by Bong Hwan Kim, Seoul National University

Monday, November 16, 2015 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

We study changes in borrower accounting recognition surrounding the initiations of receivable-based bank loans with covenants requiring accounts receivable aging reports. Our purpose is to understand how scrutiny by lenders of underlying transactions affects financial reporting incentives and to identify a mechanism through which lenders gather information and monitor borrowers. We find that allowance for doubtful accounts increases significantly after loan initiation for test firms that borrow bank loans with receivable aging reports requirement compared to propensity-score matched firms that also borrow bank loans without receivable aging reports requirement. We also find that the increase in allowance is more pronounced for single-lead lender loans and loans that lenders request more frequent aging reports. Our results confirm that lenders’ access to receivable aging information affects borrowers’ accounting choices.

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