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Can Firms Adjust Their Opaqueness to Lenders? Evidence from Foreign Bank Entry into India (Gormley T., Kim B. H., Martin X.)

Competition and Market Power Foreign Banks Information Asymmetry and Transparency

Abstract This paper investigates the impact of financial market competition on a firm’s choice regarding accounting quality. In particular, this paper uses the entry of foreign banks into India during the 1990s—analyzing variation in both the timing of the new foreign banks’ entries and in their location—to estimate the effect of increased banking competition on firms’ timely recognition of economic losses, an important aspect of accounting quality to lenders. The estimates indicate that foreign bank entry is associated with improved accounting quality, and this improvement is positively related to a firm’s subsequent debt level. The change in accounting quality appears driven by a shift in firms’ incentives to supply higher quality information to lenders and lenders seem to value this information. The increase in accounting quality is also greatest among private firms, smaller firms, non-group firms, and firms more dependent on external financing. Overall, our evidence suggests that a firm’s opaqueness is not static, and that a firm’s choice regarding accounting quality is a function of credit market competition.
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Libref/ Gormley T., Kim B. H., Martin X. (2010) “Can Firms Adjust Their Opaqueness to Lenders? Evidence from Foreign Bank Entry into India”, AFA 2010 Atlanta Meetings Paper, pp. 1-50
© Программирование — Александр Красильников, 2008
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