The Effects of Financial Reporting on Bank Loan Contracting in Global Markets : Evidence from Mandatory IFRS Adoption

This study examines the effects of the mandatory adoption of International Financial Reporting Standards (IFRS) on the contract terms of bank loans in a global setting. Using a difference-in-differences design based on 26,474 bank loans in 31 countries during the 2000-2011 period, we find that borrowers who mandatorily adopt IFRS experience an increase in interest rates, a reduction in the use of accounting-based financial covenants, an increase in the likelihood that a loan is collateralized, a reduction in loan maturity and an increase in the fraction of a loan retained by lead arrangers. These findings are robust to the removal of the 2008 financial crisis from our analysis as well as to the matching of IFRS and non-IFRS borrowers on various country- and firm-level characteristics. Furthermore, we find that these changes are more pronounced for borrowers with greater financial reporting changes as well as those with poorer accounting quality after IFRS adoption