Public disclosure and bank loan contracting: evidence from emerging markets

Abstract

Purpose

The purpose of this paper is to fill this void in the existing literature and investigate how firms’ disclosure policies influence bank loan contracting in emerging markets after controlling for the influence of borrowers’ private information obtained by banks. Furthermore, the paper examines how firms’ disclosure and non-disclosure governance interact to affect financial contracts.

Design/methodology/approach

The key variables Disclosure and Firm Governance are based on a survey by Credit Lyonnais Securities Asia (CLSA) in 2000. The paper hand-merges CLSA disclosure and governance data with the Dealscan database and Worldscope database by firm names. The paper conducts a multivariate analysis to investigate how firms’ disclosure policies influence bank loan contracting and how firms’ disclosure and non-disclosure governance interact to affect financial contracts.

Findings

The authors found that firms with superior disclosure policies obtain bank loans with more favorable loan contracting terms, such as larger amounts, longer maturity, and lower spread. In addition, the effects of disclosure on bank loan contracting are more pronounced for borrowers with superior firm-level non-disclosure governance or firms located in a country with better country-level governance.

Originality/value

The paper provides a more comprehensive view of the effects of corporate disclosure has on financial contracts in emerging economies.

Citation

Hasan, I. and Song, L. (2014), "Public disclosure and bank loan contracting: evidence from emerging markets", Asian Review of Accounting, Vol. 22 No. 1, pp. 2-19. https://doi.org/10.1108/ARA-10-2013-0069