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The role of bank monitoring in corporate governance: Evidence from borrowers' earnings management behavior

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  • Ahn, Sungyoon
  • Choi, Wooseok
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    Abstract

    In this paper, we examine the corporate governance role of banks by investigating the effect of bank monitoring on the borrowers' earnings management behavior. Our analyses suggest that a borrowing firm's earnings management behavior generally decreases as the strength of bank monitoring increases. The strength of bank monitoring is measured as (1) the magnitude of a bank loan, (2) the reputation (rank) of a lead bank, (3) the length of a bank loan, and (4) the number of lenders. These results imply that bank monitoring plays an important role in the corporate governance of bank-dependent firms. We further examine other bank loan characteristics (collateral, refinancing, loan types, and loan purposes) and their effects on borrowers' earnings management behavior. Our analyses show that collateral and loan types are significantly associated with borrowers' earnings management behavior while refinancing and loan purposes have no association.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 33 (2009)
    Issue (Month): 2 (February)
    Pages: 425-434

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    Handle: RePEc:eee:jbfina:v:33:y:2009:i:2:p:425-434

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Bank monitoring Bank loans Corporate governance Earnings management;

    References

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    Cited by:
    1. Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.
    2. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    3. Abrantes-Metz, Rosa M. & Kraten, Michael & Metz, Albert D. & Seow, Gim S., 2012. "Libor manipulation?," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 136-150.

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