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In 2007, the U.S. Securities and Exchange Commission voted to eliminate the 20-F reconciliation requirement for foreign issuers listing their stocks or bonds in the U.S. capital markets and preparing their financial statements under International Financial Reporting Standards (IFRS). Distinct from prior research focusing on the equity market, we investigate the impact of eliminating the 20-F reconciliation on the cost of debt in the U.S. listed foreign bond market. Employing a difference-in-differences approach, we document that bond yield spread increases for foreign IFRS bond issuers after the elimination of 20-F reconciliation. The results suggest that bondholders, on average, view the elimination of 20-F reconciliation as an information loss. Cross-sectional analyses reveal that the positive association between the elimination of 20-F reconciliation and bond yield spread is more pronounced for firms with greater stock return volatility, lower institutional ownership, weaker reporting incentives, and higher country-level investor protection. JEL Classifications: M41; G15; G18.

We examine whether initial loan sales in the secondary loan market relate to borrowing firms’ accounting conservatism. We find that borrowing firms exhibit a significant decline in accounting conservatism after the initial loan sales. We show that the decline in borrower conservatism is more pronounced for firms borrowing from lenders with lower monitoring incentive and for firms with lower incentive to supply conservatism. The baseline results are robust to a battery of sensitivity tests. Collectively, we provide corroborative evidence that lead lenders’ monitoring incentive is a mechanism through which accounting conservatism is enforced in the private debt market, and that lead lenders play a more prominent role than secondary loan market participants in shaping corporate (conservative) reporting.

Exploiting staggered interstate banking deregulation as exogenous shocks to bank geographic expansion, we examine the causal effect of geographic diversification on systemic risk. Using the gravity-deregulation approach, we find that bank geographic diversification leads to higher systemic risk measured by the change in conditional value at risk ($\Delta$CoVaR) and financial integration (Logistic($R^{2}))$. Furthermore, we document that geographic diversification affects systemic risk via its impact on asset similarity. The impact of geographic diversification on systemic risk is stronger in BHCs located in states comoving less with the U.S. aggregate economy.

In private debt contracts with a borrower consent clause, a creditor’s decision to transfer its portion of the loan can be thwarted if the borrower denies the consent to loan transfer. We find that the probability of the inclusion of a borrower consent clause in a private debt contract increases in the intensity of accompanying creditor control rights in the contract. This association is more pronounced for larger and less risky borrowers. We also find that loans with a borrower consent clause have lower secondary market liquidity and larger stock market returns around the announcement of the loans. We argue that consent clauses are important contractual innovations that are created to protect borrowers in response to the rise of the originate-to-distribute model of banking and the recent increase in nonbank investors’ interest in the corporate loan market.

The U.S. SEC adopted a rule in December 2007 to eliminate the 20-F reconciliation requirement for foreign private issuers preparing financial statements under IFRS as issued by the IASB. In this paper we examine whether eliminating the reconciliation is associated with information asymmetry for such foreign issuers during the 2005–2008 sample period. We find that information asymmetry decreases after such firms discontinue the 20-F reconciliation. Moreover, information asymmetry reduction is more pronounced for firms with higher reconciliation constraint proxied by higher pre-rule disclosure incentive and for firms with higher cost savings proxied by more reductions in audit fees in the post-rule period. We also document that foreign IFRS firms change accounting policies more frequently than foreign non-IFRS firms after the relaxation of the reconciliation constraint. Together, these findings provide empirical evidence supporting the SEC's decision to eliminate the 20-F reconciliation.

By integrating staggered interstate banking deregulation into a gravity model following Goetz, Laeven, and Levine (2013), (2016), we construct a time-varying, bank-specific instrument for geographic diversification and investigate its causal effect on corporate innovation via the lending channel. We find that bank geographic diversification spurs corporate innovation and enhances the economic value of innovation. We identify relaxing debt covenants and alleviating borrowers’ financial constraints as the two underlying mechanisms explaining the documented effects. Moreover, by offering lenient covenants, geographically diversified banks provide greater financial and operational flexibility to borrowing firms, enabling them to engage in future mergers and acquisitions.

We examine shareholder litigation and the price and nonprice terms of bank loan contracts. After filing a lawsuit, defendant firms pay higher loan spreads and up-front charges, experience more financial covenants, and are more likely to have a collateral requirement. These findings are consistent with reputational losses associated with shareholder litigation. The magnitude of a firm’s lost market value when the lawsuit is filed is positively related to the increase in the firm’s future borrowing costs. We investigate whether the lawsuit allegations and its merit affect future bank loan terms. Our results do not appear to be affected by self-selection.

Existing studies examining how geography affects firm outcomes primarily consider how clusters affect performance. We examine how regional geographic signature—industry clusters, regional economic diversity, region size, and regional innovativeness—affects firm value and systematic and unsystematic risk using a sample of publicly traded American bank holding companies. After controlling for endogeneity of clusters, we find that locating in large and innovative regions enhances firm value, while locating in clusters and diversifying into many regions reduces value. Clusters reduce systematic risk and increase unsystematic risk, while economic diversity and innovativeness increase systematic risk. Thus, geographic locales exert multifaceted influences on value and risk, and we need to consider more than industry clusters and geographic diversification when considering geographic influence. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd. Resume Les travaux courants sur l'influence que la geographie a sur la performance de l'entreprise examinent surtout l'impact des concentrations sur la performance. Cette etude s'appuie sur un echantillon de societes de portefeuille bancaire americaines cotees en bourse pour se pencher sur la maniere dont la signature geographique regionale-concentrations de l'industrie, diversite de l'economie regionale, taille de la region et capacite de la region a innover-influe sur la valeur de la firme et sur le risque systematique et non systematique. Apres avoir neutralise le caractere endogene des concentrations, l'etude revele que les firmes installees dans de grandes regions innovantes gagnent en valeur tandis que les firmes installees dans les concentrations et diversifiees par regions en perdent. Les concentrations reduisent le risque systematique et augmentent le risque systematique, tandis que la diversite de l'economie et l'innovativite augmente le risque non systematique. Il s'ensuit que les milieux geographiques exercent des influences multiples sur la valeur et le risque. Par consequent, dans l'etude de l'influence geographique, il faut aller au-dela des concentrations de l'industrie et de la diversification geographique.

We examine whether initial loan sales in the secondary loan market relate to borrowing firms’ accounting conservatism. We find that borrowing firms exhibit a significant decline in accounting conservatism after the initial loan sales. We show that the decline in borrower conservatism is more pronounced for firms borrowing from lenders with lower monitoring incentive and for firms with lower incentive to supply conservatism. The baseline results are robust to a battery of sensitivity tests. Collectively, we provide corroborative evidence that lead lenders’ monitoring incentive is a mechanism through which accounting conservatism is enforced in the private debt market, and that lead lenders play a more prominent role than secondary loan market participants in shaping corporate (conservative) reporting.

We examine how CEO turnover and changes in information uncertainty affect the price and non-price terms of bank loan contracts. Firms face worsened loan terms following the departure of a CEO. Interestingly, the negative effect that CEO departures have on loan terms largely stems from forced CEO turnovers. Following forced CEO departures, firms pay higher loan spreads, see an increase in covenants, and are more likely to be subject to collateral requirements, when compared to voluntary turnover and non-turnover matched firms. We find that changes in information uncertainty helps to explain the observed worsened terms following these dismissals. Furthermore, a superior capital market information environment helps to mitigate the adverse effect of the forced departure on bank loan terms and weakens the channel effect of accounting information quality. Our results are robust to a number of controls for endogeneity and outline the importance of public information for bank loan contracting.

In this study, we investigate the relationship between various dimensions of diversification and the cost of debt for publicly traded bank holding companies (BHCs). We find that both domestic geographic diversification of deposits and diversification of assets lead to a lower bond yield-spread. Diversification of non-traditional banking activities leads to a lower cost of debt only when yield-spread and diversification are estimated simultaneously. In addition, we find that medium-sized BHCs experience a greater reduction in bond yield-spread than small-sized and large-sized BHCs. This is consistent with the too-big-to-fail (TBTF) effects in the banking industry. Furthermore, we document that the association between diversification and yield-spread is bidirectional with higher yield-spreads being associated with greater asset and activity diversification and lower geographic deposit dispersion. The effect of diversification on bond yield-spread is robust after accounting for cross-sectional and serial correlation, and the endogeneity of diversification.

We use the geographically-constrained holdings of single-state municipal-bond mutual funds in order to compare the performance of local and non-local mutual fund managers. In general, we find that local managers display worse performance and significantly different risk profiles than non-local fund managers. Despite their lower returns overall, locally-managed muni bond funds display a relative advantage in markets that are financially illiquid, spatially compact, and with more population. Overall, locally-managed muni bond funds may survive in a competitive market for investment management because they provide a product that is relatively low-cost, more financially stable, and with distinct benefits in certain regional markets.

We construct a unique dataset from several databases including CRSP, FDIC's Summary of Deposits, and BHC database to investigate the impact of geographic diversification on return, risk, and firm value of large publicly traded BHCs. The deposit dispersion employed here as a measure of geographic diversification has some advantages over those used in the extant literature; it accounts for both the number of locations in which a BHC operates, and the level of activity in each location, it is continuous, and it is limited to a zero-unity range facilitating comparison of geographic diversification across BHCs. Our empirical results show that geographic diversification is associated with a significant decline in BHC total, firm-specific, and systematic market risks, and insignificant return and firm value effects. These results provide a rationale for the BHC diversification, and mergers and acquisitions witnessed in the recent decades, in spite of the zero return and value effects. Moreover, we investigate how the distance between the parent BHC and subsidiary banks affects BHC return, risk, and firm value. We find that BHC-subsidiary distance raises BHC total and firm-specific risks, while leaving the BHC return unaffected and reducing BHC value. The first result supports the internal monitoring hypothesis. The value effect is inconsistent with studies in corporate finance, suggesting that the findings on corporate firms do not necessarily extend to BHCs.