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Accounting-Driven Bank Monitoring and Firms’ Debt Structure: Evidence from IFRS 9 Adoption

Author

Listed:
  • Xiao Li

    (School of Accountancy, Central University of Finance and Economics, Beijing, China 100081)

  • Jeffrey Ng

    (Area of Accounting and Law, The University of Hong Kong, Hong Kong)

  • Walid Saffar

    (School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong)

Abstract

International Financial Reporting Standard (IFRS) 9 is of practical relevance to banks because it requires intense monitoring of borrowers to record timely loan losses. Using data from 50 countries, we find that accounting-driven bank monitoring due to IFRS 9 adoption reduces firms’ reliance on bank debt relative to public debt. This finding is consistent with firms experiencing more costly bank monitoring after a shift in regulatory reporting that requires banks to monitor borrowers more intensely. In further analyses, we find that the negative effect of IFRS 9 adoption on bank debt reliance is more pronounced with more stringent regulatory supervision of banks, consistent with regulatory stringency exacerbating costly bank monitoring for firms. We also find that the negative effect is stronger when firms can more easily switch from bank debt to public debt financing, consistent with the relevance of switching costs in firms’ decisions to avoid costly bank monitoring.

Suggested Citation

  • Xiao Li & Jeffrey Ng & Walid Saffar, 2024. "Accounting-Driven Bank Monitoring and Firms’ Debt Structure: Evidence from IFRS 9 Adoption," Management Science, INFORMS, vol. 70(1), pages 54-77, January.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:1:p:54-77
    DOI: 10.1287/mnsc.2022.4628
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