Accounting information and risk shifting with asymmetrically informed creditors

• 成果类型: Article
• 署名作者: Baldenius, Tim; Deng, Mingcherng; Li, Jing
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY); University of Hong Kong
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2023.101667
• 发表日期: 2024
• 关键词: LENDING RELATIONSHIPS; CONTRACTS; BEHAVIOR; banking; firm

摘要

This paper explores the effects of public information such as accounting earnings in a competitive lending setting with risk shifting. Debt financing creates incentives for borrowers to take on excessive risks, in particular in bad states of the world. If a privately informed inside creditor bids against outside creditors to extend a loan, public information levels the playing field, which affects the bidding and risk shifting. Nonetheless, a perfect public signal would yield the least efficient outcome: introducing some measurement noise alleviates risk shifting by subjecting outside creditors to the winner's curse, allowing borrowers in bad states cheaper access to loans. However, for pessimistic priors about the borrower, greater public signal precision can alleviate risk shifting, at the margin. We discuss implications for financial reporting regulations along the business cycle and for creditor turnover.