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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
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    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

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