This paper empirically examines the association between bank capital and banks' monitoring effort. We use four proxies to measure the unobservable monitoring effort. Two of the proxies are based on loan quality (ex-post outcomes of monitoring effort). The other two proxies are based on salary...

We propose a novel role for accounting covenants in credit lines. Accounting covenants protect banks against severe aggregate liquidity shocks and firms against losing liquidity at will of banks. During aggregate liquidity shocks, banks need to ration liquidity, and covenants allow banks to...

Recent years have seen a new trend in commercial bank lending—loans with no financial covenants. These covenant light, or cov-lite, loans raise concerns about excessive risk to lenders due to lack of monitoring. In this study, we examine the consequences of cov-lite loans. Focusing on rated,...

Recent evidence suggests that investors struggle to process complex financial disclosures. Relative to equity and public debt investors, banks have unique advantages in acquiring information and can impose contractual terms to mitigate information frictions. We investigate whether financial...

We analyze whether the disaggregation quality (DQ) of a borrower's financial statement is associated with its bank loan pricing. We find that firms with low DQ have high bank loan spreads and total cost of borrowing. These results are more pronounced for risky and poorly governed firms....

This article investigates the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies examine how intangible assets affect firms' profitability and valuation decisions with almost no focus on the role of loan loss provisions. We investigate...

Policy uncertainty (PU) is an increasingly important issue in many economies. Extensive evidence indicates that higher PU is associated with future negative macroeconomic and microeconomic conditions. In this paper, we examine how PU affects banks' accruals for loan losses. Consistent with banks...

We examine the impact on a firm when it is exogenously forced to switch its bank relationship from one branch to another branch of the same bank. We show the effect depends directly on the relative balance between the hard accounting information provided to the bank by the firm, as part of the...

Does enhancing banks' information sets and understanding of credit risks improve loan loss recognition? We study this question using a global dataset of staggered initiations and coverage increases of public credit registries (PCRs). Mandated by national regulators, PCRs collect borrower and...

We employ the European Central Bank's Loan-level Reporting Initiative as a shock to banks' asset disclosures. We find that, after the regulation, treatment banks raise more capital at cheaper rates and increase lending. Using novel survey data on small businesses, we also document that, in...