IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v16y2011i4d10.1007_s11142-011-9148-5.html
   My bibliography  Save this article

The voluntary adoption of International Financial Reporting Standards and loan contracting around the world

Author

Listed:
  • Jeong-Bon Kim

    (City University of Hong Kong)

  • Judy S. L. Tsui

    (Hong Kong Polytechnic University)

  • Cheong H. Yi

    (Hong Kong Polytechnic University)

Abstract

Using a sample of non-U.S. borrowers from 40 countries during 1997 through 2005, this paper investigates the effect of the voluntary adoption of International Financial Reporting Standards (IFRS) on price and nonprice terms of loan contracts and loan ownership structure in the international loan market. Our results reveal the following. First, banks charge lower loan rates to IFRS adopters than to non-adopters. The difference in loan rates in excess of a benchmark rate between the two groups is about 20 basis points for all loans and nearly 31 basis points for London Interbank Offered Rate (LIBOR)-based loans. Second, banks impose more favorable nonprice terms on IFRS adopters, particularly less restrictive covenants. We also provide evidence suggesting that banks are more willing to extend credit to IFRS adopters through larger loans and longer maturities. Finally, IFRS adopters attract significantly more foreign lenders participating in loan syndicates than non-adopters.

Suggested Citation

  • Jeong-Bon Kim & Judy S. L. Tsui & Cheong H. Yi, 2011. "The voluntary adoption of International Financial Reporting Standards and loan contracting around the world," Review of Accounting Studies, Springer, vol. 16(4), pages 779-811, December.
    • Handle: RePEc:spr:reaccs:v:16:y:2011:i:4:d:10.1007_s11142-011-9148-5
    DOI: 10.1007/s11142-011-9148-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-011-9148-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-011-9148-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Graham, John R. & Li, Si & Qiu, Jiaping, 2008. "Corporate misreporting and bank loan contracting," Journal of Financial Economics, Elsevier, vol. 89(1), pages 44-61, July.
    2. Mary E. Barth & Wayne R. Landsman & Mark H. Lang, 2008. "International Accounting Standards and Accounting Quality," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 46(3), pages 467-498, June.
    3. Hollis Ashbaugh & Morton Pincus, 2001. "Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(3), pages 417-434, December.
    4. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
    5. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
    6. Leuz, C & Verrecchia, RE, 2000. "The economic consequences of increased disclosure," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 38, pages 91-124.
    7. Asquith, Paul & Beatty, Anne & Weber, Joseph, 2005. "Performance pricing in bank debt contracts," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 101-128, December.
    8. Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
    9. Barclay, Michael J & Smith, Clifford W, Jr, 1995. "The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-631, June.
    10. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    11. Richard Lambert & Christian Leuz & Robert E. Verrecchia, 2007. "Accounting Information, Disclosure, and the Cost of Capital," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 45(2), pages 385-420, May.
    12. Dennis, Steven & Nandy, Debarshi & Sharpe, Lan G., 2000. "The Determinants of Contract Terms in Bank Revolving Credit Agreements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(1), pages 87-110, March.
    13. Marco Pagano & Ailsa A. Röell & Josef Zechner, 2002. "The Geography of Equity Listing: Why Do Companies List Abroad?," Journal of Finance, American Finance Association, vol. 57(6), pages 2651-2694, December.
    14. Vicentiu M. Covrig & Mark L. Defond & Mingyi Hung, 2007. "Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 45(1), pages 41-70, March.
    15. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    16. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
    17. Kee‐Hong Bae & Vidhan K. Goyal, 2009. "Creditor Rights, Enforcement, and Bank Loans," Journal of Finance, American Finance Association, vol. 64(2), pages 823-860, April.
    18. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, April.
    19. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    20. Ryan Ball & Robert M. Bushman & Florin P. Vasvari, 2008. "The Debt‐Contracting Value of Accounting Information and Loan Syndicate Structure," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 46(2), pages 247-287, May.
    21. Baiman, S & Verrecchia, RE, 1996. "The relation among capital markets, financial disclosure, production efficiency, and insider trading," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 34(1), pages 1-22.
    22. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 709-737.
    23. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 37-60, March.
    24. Rajan, Raghuram & Winton, Andrew, 1995. "Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-1146, September.
    25. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yongheng Deng & Maggie (Rong) Hu & Anand Srinivasan, 2017. "Information Asymmetry and Organizational Structure: Evidence from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 55(1), pages 32-64, July.
    2. Ge, Wenxia & Kim, Jeong-Bon & Song, Byron Y., 2012. "Internal governance, legal institutions and bank loan contracting around the world," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 413-432.
    3. Allen N. Berger & Tanakorn Makaew & Raluca Roman, 2015. "Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms," Research Working Paper RWP 15-11, Federal Reserve Bank of Kansas City.
    4. LiuLing Liu, 2015. "Analyst coverage, syndicate structure, and loan contracts," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 1-21, June.
    5. Lin, Chih-Yung & Chen, Yan-Shing & Yen, Ju-Fang, 2014. "On the determinant of bank loan contracts: The roles of borrowers’ ownership and board structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 500-512.
    6. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    7. Lin, Zhijun & Song, Byron Y. & Tian, Zhimin, 2016. "Does director-level reputation matter? Evidence from bank loan contracting," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 160-176.
    8. Graham, John R. & Li, Si & Qiu, Jiaping, 2008. "Corporate misreporting and bank loan contracting," Journal of Financial Economics, Elsevier, vol. 89(1), pages 44-61, July.
    9. Baylis, Richard M. & Burnap, Peter & Clatworthy, Mark A. & Gad, Mahmoud A. & Pong, Christopher K.M., 2017. "Private lenders’ demand for audit," Journal of Accounting and Economics, Elsevier, vol. 64(1), pages 78-97.
    10. Anna M. Costello & Regina Wittenberg‐Moerman*, 2011. "The Impact of Financial Reporting Quality on Debt Contracting: Evidence from Internal Control Weakness Reports," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 49(1), pages 97-136, March.
    11. Kim, Young Sang & Kim, Yura & Yi, Ha-Chin, 2021. "Vice or virtue? The impact of earnings management on bank loan agreements," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 303-324.
    12. 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.
    13. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    14. De George, Emmanuel T. & Li, Xi & Shivakumar, Lakshmanan, 2016. "A review of the IFRS adoption literature," LSE Research Online Documents on Economics 67599, London School of Economics and Political Science, LSE Library.
    15. Chandera, Yane & Setia-Atmaja, Lukas & Utama, Cynthia Afriani & Husodo, Zaäfri Ananto, 2021. "Ownership dispersion across large shareholders and loan-syndicate structure," Research in International Business and Finance, Elsevier, vol. 55(C).
    16. Hertzel, Michael G. & Officer, Micah S., 2012. "Industry contagion in loan spreads," Journal of Financial Economics, Elsevier, vol. 103(3), pages 493-506.
    17. Emmanuel T. De George & Xi Li & Lakshmanan Shivakumar, 2016. "A review of the IFRS adoption literature," Review of Accounting Studies, Springer, vol. 21(3), pages 898-1004, September.
    18. Daniel Cohen & Bin Li & Ningzhong Li & Yun Lou, 2022. "Major government customers and loan contract terms," Review of Accounting Studies, Springer, vol. 27(1), pages 275-312, March.
    19. Ju-Fang Yen & Chih-Yung Lin & Yan-Shing Chen & Ying-Chen Huang, 2015. "Founding Family Firms and Bank Loan Contracts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 53-82, August.
    20. Yin-Siang Huang & Iftekhar Hasan & Ying-Chen Huang & Chih-Yung Lin, 2021. "Political Uncertainty and Bank Loan Contracts: Does Government Quality Matter?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(2), pages 157-185, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:16:y:2011:i:4:d:10.1007_s11142-011-9148-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.