Journal
REVIEW OF FINANCIAL STUDIES
Volume 31, Issue 4, Pages 1265-1297Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/hhx123
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Funding
- Accounting Research Center at the Booth School of Business
- Deloitte Foundation
- German Academic Exchange Service (DAAD)
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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.
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