This paper investigates whether the initiation of trading in credit default swaps (CDSs) on a borrowing firm's outstanding debt is associated with a decline in that firm's reporting conservatism. CDS investments can modify lenders' payoffs on their loan portfolios by providing insurance on...

Lenders can transfer credit risk by purchasing credit default swaps (CDS), but holding swaps can diminish their incentives to monitor borrowers. Contracting theory predicts that lenders demand conservatism, in particular asymmetric timeliness of loss recognition, to effectively monitor...

How do developments at lending institutions that alter the way they grant and monitor loans influence their borrowers' financial reporting quality (FRQ)? We examine this question by investigating the influence that privatizations of Chinese state banks (CSBs) had on the quality of their...

This paper investigates the effect of internal information asymmetry (hereafter IIA) within conglomerate firms on the quality of management forecasts and financial statements. We develop a novel measure to capture IIA between divisional managers and top corporate managers, computed as the...

Various studies have investigated variation in reporting conservatism with pre-specified contractual incentives. Lawrence et al. (forthcoming), hereafter LSS, propose a model to control for “normal” or “non-discretionary” conservatism while testing for variation in conservatism with...

This paper investigates whether the initiation of trading in credit default swaps (CDSs) on a borrowing firm׳s outstanding debt is associated with a decline in that firm׳s reporting conservatism. CDS investments can modify lenders׳ payoffs on their loan portfolios by providing insurance on...