Affiliated Banker on Board and Conservative Accounting
نویسندگان
چکیده
We examine the effect of lending banks’ board representation (affiliated banker on board, or AFB) on conservative accounting. We argue that private information obtained through board representation enhances the monitoring and the influence of lenders and therefore reduces their demand for conservatism-facilitated debt contracting. Consistent with our hypothesis, we find that conservatism is markedly lower for AFB firms, even after controlling for a variety of confounding effects. In addition we find: (1) greater reduction in conservatism for AFB than for relationship banking, highlighting the uniqueness of board representation; (2) no reduction in conservatism when unaffiliated bankers are on board, suggesting the importance of affiliation with lender; and (3) lower use of covenants and lower sensitivity between conservatism and covenant intensity for AFB firms, suggesting that AFB substitutes for the conventional monitoring through conservatism-facilitated debt contracting. JEL classification: G3; G21; M41
منابع مشابه
Affiliated bankers on board and conservative accounting
We examine the tradeoff between having affiliated bankers on board and conservative accounting for mitigating debtholder-shareholder conflicts. We argue that affiliated bankers on board provide lenders with private information and control rights, thereby lowering debtcontracting demand for conservatism in public financial reports. We find that firms with affiliated bankers on board have lower c...
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