Using novel receivable‐based loan data, we study the effect of aging‐report loan covenants on borrowers' accounts receivable reporting quality. Our purpose is to highlight a channel that lenders use to obtain private information and to understand whether lenders' information acquisition affects the financial reporting quality of borrowers. Compared to receivable‐based borrowers without aging‐report requirements (control firms), borrowers with such requirements (test firms) increase their receivable reporting quality significantly after loan initiations. The shift in reporting quality is more pronounced when borrowers have weak bargaining power. Our results lend support to the argument that lender information access affects borrowers' reporting quality.

We study changes in borrower accounting recognition surrounding initiation of loans requiring the provision of aging schedules to the lender. Our purpose is to understand how scrutiny by lenders of underlying transactions affects financial reporting incentives. We find that allowance for doubtful accounts increases significantly after loan initiation controlling for current and future write-offs, receivable turnover, and the beginning allowance balance. This increase is more pronounced for loans with increased monitoring frequency. We also find that write-offs are less persistent following implementation of bank monitoring, consistent with increased timeliness. Further study of the customer base finds customer concentration declines and credit quality of largest customers improves after initiation of borrowing base loans. Lastly, we find borrowers increase the frequency of allowance-for-doubtful-accounts disclosure in their quarterly financial statements after loan initiation. Our results confirm two notions. Banks add to the oversight that already exists for public, audited companies and banks influence borrowers to adopt more conservative accounting policies. JEL: G14, G21, G24, G28

We examine how option compensation affects banks' risky mortgage origination and sale decisions before the financial crisis in 2008. We find that, in the period immediately before the financial crisis, option compensation has little impact on the riskiness of mortgages originated and is negatively associated with mortgage lenders' propensity to sell risky mortgages. The results are consistent with banks' incentives to maximize revenues from origination and servicing fees while managing risk exposure by adjusting the sale of risky mortgages. For identification, we use bank-year fixed effects and matched loan applications to control for both supply- and demand-side factors of mortgage lending. We find similar results when using the variation in option compensation generated by the implementation of FAS 123R.

We examine how management stock options affect corporate risk taking. We exploit exogenous variation in stock option grants generated by FAS 123R and use loan spreads to infer risk taking. Using a difference-in-differences approach, we find that the spreads of loans taken by firms that did not expense options before FAS 123R (treated firms) significantly decrease after FAS 123R relative to firms that either did not issue stock options or voluntarily expensed stock options before 123R (control firms). We also find that the effect is stronger for firms with high agency conflicts associated with risk-shifting. Furthermore, loans taken by the treated firms are less likely to contain collateral requirements and are less likely to have covenants restricting capital investment post FAS 123R.

We examine the relationship between audit quality and office-level auditor turnover. Using resumes of over 106,000 Big 4 auditors, we find that audit offices with higher turnover have a greater likelihood of client annual report restatements. This detrimental effect is more pronounced when the departing auditors are more experienced and when the office faces tighter human capital constraints and is primarily attributable to voluntary turnover. Further, such negative effect is borne mostly by complex clients and intangible-intensive clients but is weakened for clients with greater product similarity to the client portfolio of the audit office. Last, the impact of office-level turnover on audit quality persists after controlling for firm-level turnover. Our findings inform the current policy debate on whether and to what extent audit firms should disclose auditor turnover as a potential indicator of audit quality. Data Availability: Data are available from the public sources cited in the text.