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This paper aims to investigate how borrowers’ accounting quality influences bank loan syndicates across 11 emerging markets. Furthermore, an investigation of whether the relationship between accounting quality and the bank loan syndicate structure is influenced by borrowers’ governance standards is conducted.

To empirically test the research question, a sample including 11 emerging countries is constructed. Following Chen et al. (2011), an accounting quality measure is constructed by aggregating the three commonly used indicators developed by Kothari et al. (2005), McNichols and Stubben (2008) and Dechow and Dichev (2002). A univariate analysis and a multivariate analysis are conducted to investigate the relationship between accounting quality and bank loan syndicate structure after controlling for firm characteristics and other variables.

The results of this research show that lead lenders need to retain more ownership and organize a more concentrated loan syndicate when borrowers have poor accounting quality because they must show their commitment to monitoring borrowers. In addition, lead lenders have fewer foreign lenders involved in a loan syndicate and these foreign lenders retain less loan ownership if borrowers’ accounting quality is poor because lead banks prefer local lenders who are more familiar with borrowers. Finally, the effects of accounting quality on bank loan syndicates are more significant for borrowers with superior governance because the credibility of accounting numbers generated by a well-governed borrower is better.

The existing studies (Ball et al., 2008; Lee and Mullineaux, 2004; Sufi, 2007) have shown how information asymmetry and accounting quality affect loan syndicates in developed countries. This strand of literature is extended by the presentation of significant effects of accounting quality on financing arrangements, even in emerging economies with weak governance standards. This stream of literature is also extended by finding the interaction effects between accounting quality and governance standards on bank loan syndicates, a relationship which has not been examined by the existing literature (Ball et al., 2008).

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.

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.

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.

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

The purpose of this paper is to explore how firms’ disclosure standards influence the syndicated loan market, with an emphasis on loan syndicate structure and composition.

To empirically investigate the effects of corporate disclosure on bank loan syndicate structure and composition, the authors hand-match Dealscan, Worldscope, and other databases and construct a sample across 11 emerging markets.

The authors found that lead banks retain less ownership and form a less-concentrated loan syndicate when borrowers have superior disclosure policies. The authors also concluded that lead banks select more foreign participants in a loan syndicate and these members retain more ownership when borrowers have high disclosure rankings. Finally, the authors present evidence that the relationship between corporate disclosure and bank loan syndicates is more significant for firms with better governance.

The findings suggest that corporate disclosure has a significant influence on financing arrangements, even in a weak governance environment.