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The Impact of Bank Financing on Borrowers’ Voluntary Disclosures and Real Investments

Author

Listed:
  • Mingyi Hung

    (HKUST Business School, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong SAR)

  • Yupeng Lin

    (NUS Business School, National University of Singapore, 119245 Singapore)

  • Lynn Linghuan Wang

    (HKU Business School, The University of Hong Kong, Hong Kong SAR)

  • Zilong Zhang

    (School of Economics, Zhejiang University, Hangzhou 310058, P.R. China)

Abstract

This paper examines how an increase in bank lending affects firms’ investment disclosures and policies. Exploiting the unconventional liquidity injections by the European Central Bank in 2011–2012, we find that U.S. borrowers of European Union (EU) banks receive greater bank financing and issue more management capital expenditure (capex) forecasts following the liquidity injections. In contrast, we find no evidence of changes in bond financing or issuance of management earnings forecasts. We also find that EU banks’ U.S. borrowers on average receive negative market reactions to their capex forecasts and make no change in investment following the liquidity injection. Further, relative to firms with positive feedback, firms with negative feedback have a lower increase in investment but a higher increase in financial assets. Additionally, we find that the effect of increased bank lending on management capex forecasts is more pronounced among banks with weaker financial conditions and among borrowers with greater financial constraints, higher growth volatility, and more informed trading. These findings highlight the important role of capex forecasts in seeking market feedback following increased bank lending and suggest that market feedback helps explain why the transmission of bank credit to corporate investment did not occur following the liquidity injections.

Suggested Citation

  • Mingyi Hung & Yupeng Lin & Lynn Linghuan Wang & Zilong Zhang, 2026. "The Impact of Bank Financing on Borrowers’ Voluntary Disclosures and Real Investments," Management Science, INFORMS, vol. 72(2), pages 1175-1197, February.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:2:p:1175-1197
    DOI: 10.1287/mnsc.2022.00528
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