How Does Financial Reporting Regulation Affect Firms’ Banking?
The Review of Financial Studies, Volume 31, Issue 4, 1 April 2018, Pages 1265-1297
95 Pages Posted: 25 Jul 2015 Last revised: 1 Jul 2018
Date Written: September 14, 2017
We examine the effects of financial reporting regulation on firms’ banking. Exploiting discontinuous public disclosure and auditing requirements assigned to otherwise similar small and medium-sized private firms, we document that financial reporting regulation reduces firms’ reliance on concentrated and local bank relationships and increases banks’ reliance on firms’ financial reporting, consistent with a shift in firms’ banking from relationship toward transactional approaches. Our evidence suggests that financial reporting regulation substitutes for banks’ information production role by burdening firms with the disclosure and auditing of their financial statements, consistent with institutional complementarities between reporting and banking systems.
Keywords: financial intermediation, financial reporting, public disclosure, auditing, competition
JEL Classification: M41, M48, G38
Suggested Citation: Suggested Citation