Debtholder monitoring incentives and bank earnings opacity
Danisewicz, P; McGowan, D; Onali, E; et al.Schaeck, K
Date: 12 May 2020
Journal
Journal of Financial and Quantitative Analysis
Publisher
Cambridge University Press (CUP)
Publisher DOI
Abstract
We exploit exogenous legislative changes that alter the priority structure of different classes of debt to study how debtholder monitoring incentives affect bank earnings opacity. We present novel evidence that exposing nondepositors to greater losses in bankruptcy reduces bank earnings opacity, especially for banks ...
We exploit exogenous legislative changes that alter the priority structure of different classes of debt to study how debtholder monitoring incentives affect bank earnings opacity. We present novel evidence that exposing nondepositors to greater losses in bankruptcy reduces bank earnings opacity, especially for banks with larger shares of nondeposit funding, listed banks, and independent banks. The reduction in earnings opacity is driven by a lower propensity to overstate earnings and becomes larger during crises, when the incentive to conceal capital shortfalls is stronger. Our findings highlight the importance of creditors’ monitoring incentives in improving the quality of information disclosure.
Finance and Accounting
Faculty of Environment, Science and Economy
Item views 0
Full item downloads 0