Debtholder Monitoring Incentives and Bank Earnings Opacity

Danisewicz, Piotr; McGowan, Danny; Onali, Enrico; Schaeck, Klaus

Abstract

We exploit exogenous legislative changes that alter the priority structure of different classes of debt to study how debtholder monitoring incentives affect bank earnings opacity. We present novel evidence that exposing nondepositors to greater losses in bankruptcy reduces earnings opacity, especially for banks with larger shares of nondeposit funding, listed banks, and independent banks. The reduction in earnings opacity is driven by a lower propensity to overstate earnings and is more pronounced among larger banks and in banks with more real estate loan exposure. Our findings highlight the importance of creditors’ monitoring incentives in improving the quality of information disclosure.

Citation

Danisewicz, P., McGowan, D., Onali, E., & Schaeck, K. (2020). Debtholder Monitoring Incentives and Bank Earnings Opacity. Journal of Financial and Quantitative Analysis, 56(4), 1408-1445. https://doi.org/10.1017/s0022109020000241

• Journal Article Type: Article
• Acceptance Date: Apr 2, 2020
• Online Publication Date: Oct 9, 2020
• Publication Date: Oct 9, 2020
• Deposit Date: Jun 10, 2024
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 56
• Issue: 4
• Pages: 1408-1445
• DOI: https://doi.org/10.1017/s0022109020000241
• Public URL: https://durham-repository.worktribe.com/output/2480851