The Effects of Bank Loan Contracting on Financial Reporting: Evidence from Taiwan IFRS Reconciliation
Wei-Ren Yao/Department of Accounting, National Dong Hwa University
Chia-Hsuan Tseng/Department of Accounting, Ming Chuan University
Meng-Chen Sie/Deloitte Taiwan
Abstract
This study examines whether bank loan provisions affect the choice of accounting policies for firms during the transition to a new accounting standard, International Financial Reporting Standards (IFRS). Controlling the same underlying economic performance (i.e., Taiwan loan market) and directly measuring and capturing the cross-sectional variation of the effects of individual IFRS firms (i.e., “Reconciliations”) on contractual loan terms. We hypothesize that the magnitude of loan deal amount and various loan provisions affect reconciliations, as calculated by the differences in financial statement numbers under previous local GAAP and IFRS in the transition year. We empirically find that both loan amounts and the number of financial covenants are positively associated with the reconciliation amount’s magnitude. We further divide our sample into positive and negative reconciliation sub-samples. We find that the negative reconciliation firms give rise to our overall results. Our findings are consistent with firms choosing upward/downward adjustments to affect/me provisions during the IFRS transition period.
Keywords
IFRS reconciliationBank loanFinancial covenantAccounting quality
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