Differences in environmental reporting practices in the UK and the US: the legal and regulatory context

The paper examines current corporate environmental reporting practices within UK and US annual reports and suggests that elements of the legal and regulatory framework of each country which regulate environmental activity, and so influence environmental performance, determine the types of disclosures made. The environmental management context is examined to present an explanation of recent developments and to suggest what influences on reporting practice may be important. Theoretical considerations are examined to establish whether the types of disclosure arising from regulatory pressures demonstrate that accountability exists in the disclosure of environmental information, and to what extent the disclosure discharges the organisation's accountability to the users of such information.     

Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending

We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures rule (TRID) simplifies the mortgage disclosures provided to consumers. As a consequence, TRID-affected mortgages become a less attractive investment opportunity to banks. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We find evidence consistent with both a decrease in consumers' information processing costs and an increase in banks' secondary market frictions, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending, and that fintechs absorb mortgage demand in areas with reduced mortgage lending by banks. Our study documents real actions that firms take in response to disclosure transparency regulation and contributes to the literature on the economic consequences of such regulation.     

中小银行经营绩效影响因素的实证研究——基于中美数据的对比分析

中小银行比较优势需要内外部多方面因素配合,中美中小银行的实证检验表明：宏观环境、市场结构、经营模式和公司治理四个因素对中小银行经营绩效存在显著影响。其中,宏观环境是中小银行生存和发展的基础,适度的市场竞争是中小银行形成比较优势的外部压力,经营模式和公司治理是中小银行比较优势形成的内因,四个因素相互配合才能促进中小银行比较优势发挥。     

Intra- and inter-regional portfolio diversification strategies under regional market integration: Evidence from U.S. global banks

This study empirically assesses whether being a part of any specific region affects global banks' decisions on capital allocation across 20 developed and 44 emerging markets by using data on U.S. banks in the period from 2006 to 2015. We find that both the intra-bank lending of a parent bank to its affiliates abroad and the local lending of foreign affiliates decrease as internal lending to neighboring countries within a region increases. This finding provides evidence of the negative spillover or contagion effects from regional allocations on the capital allocation of global banks to individual economies. Our findings reflect that financial markets are integrated within the region, which suggests no intra-regional diversification benefits to the United States or to other global investors. Moreover, parent banks' intra-bank lending translates into foreign affiliates' local lending in the host country. A policy implication is that countries in the same region should strengthen coordinated efforts to ensure free intra-regional capital mobility and diversify country-specific risk. The findings of this study can help enhance our understanding of the relationships between financial markets interconnectedness and global banks' portfolio management strategies.     

Global Banks and Synthetic Funding: The Benefits of Foreign Relatives

This paper examines the effect of dislocations in foreign currency (FX) swap markets (“CIP deviations”) on bank lending. Using data from UK banks we show that when the cost of obtaining swap-based funds in a particular foreign currency increases, banks reduce the supply of cross-border credit in that currency. This effect is increasing in the degree of banks' reliance on swap-based FX funding. Access to foreign relatives matters as banks employ internal capital markets to shield their cross-border FX lending supply from the described channel. Partial substitution occurs from banks outside the UK not affected by changes in synthetic funding costs.     

Preferential Regulatory Treatment and Banks' Demand for Government Bonds

The purpose of this paper is to analyze the impact of preferential regulatory treatment on banks' demand for government bonds. Using unique transaction‐level data, our analysis suggests that preferential treatment in microprudential liquidity and capital regulation significantly increases banks' demand for government bonds. Liquidity and capital regulation also seem to incentivize banks to substitute other bonds with government bonds. We also find evidence that this “regulatory effect” leads banks to reduce lending to the real economy.     

A CONCEPTUAL FRAMEWORK FOR CORPORATE RISK DISCLOSURE EMERGING FROM THE AGENDA FOR CORPORATE GOVERNANCE REFORM

During the last decade an implicit conceptual framework for internal control and corporate risk management has arisen from risk management practice and policy within UK companies. An explicit conceptual framework for risk management is now emerging and is expressed in the Turnbull Report. In this paper, we develop a diagrammatic representation for the conceptual framework for internal control, risk management and risk disclosure. We consider the recent practical and policy developments in the disclosure of risk-related information in order to establish the current state of the art of corporate risk disclosure. Thus, we focus only on the disclosure aspect of the conceptual framework for internal control. We use a questionnaire survey to canvas the attitudes of UK institutional investors towards risk disclosure in relation to their portfolio investment decisions. Our empirical findings indicate that institutional investors do not generally favour a regulated environment for corporate risk disclosure or a general statement of business risk. The respondents agree that increased risk disclosure would help them in their portfolio investment decisions. However, for other aspects of the risk disclosure issue they are more neutral in attitude. Further, we found that the variation in the attitudes of institutional investors appears to be associated with the characteristics of the funds they manage as well as with their investment horizons. Further, we find that institutional investors’ perceptions of corporate governance are related to their investment horizons, among other factors.     

Banks' consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing

Access to credit information and the ability to process this information effectively determine the conditions of competition in the credit market. Traditionally, local banks have had an advantage in relationship lending (based on soft credit information), whereas foreign banks are considered to base on hard credit information. With the advent of financial technology (or “fintech”) companies (or “fintechs”) and giant technology (or “bigtech”) companies (or “bigtechs”) providing alternative credit, the conditions of competition in the credit market have changed. In this empirical study, we shed light on the nature of the information advantages fintech and bigtech companies have compared to banks and how alternative lenders use them. We analyze competition in the consumer lending segment between banks and fintechs as well as bigtechs providing alternative lending. We used a database combining bank-level characteristics and country-level proxies for 72 countries from 2013 to 2018. We find that in developed markets, the relationships between fintech and bigtech credit providers and banks are similar and competitive in nature. However, banks' consumer lending grows simultaneously with fintech credit market development in emerging economies, but decreases in the aftermath of the emergence of bigtech credit. Fintech credit seems to penetrate market segments not serviced by banks; thus, it plays a complementary role, however only in emerging economies. Bigtech companies compete even more with banks and push some banking offers out of the market, both in emerging and developed economies. Furthermore, we show that domestic and privately-owned banks are more negatively affected by competition from technology-based lending, particularly bigtech, than foreign banks. Thus, bigtech lending may be treated as a serious competition for banks' relationship lending based on soft credit information processing, traditionally provisioned by local banks.     

Determinants of international credit allocation: An analysis of US lending by Japanese banks, 1988 to 1994

The central issues addressed are the extent and causes of interdependency between Japanese banks' domestic and US lending. We examine hypotheses that domestic and US credit allocations by Japanese banks during the late 1980s and early 1990s are related through their mutual dependence on capital availability, and that the unique information role of banks as financial intermediaries leads to complementarity between their domestic and international lending. Both hypotheses receive support. Related conclusions are that economic and regulatory conditions in Japan strongly influence the extent of Japanese banks' US lending.     

Sentiment volatility and bank lending behavior

Using a panel of commercial, co-operative and savings banks from G7 countries, we investigate whether the changes in sentiment and its volatility affect banks' lending behavior. We show that the changes in economic agents' sentiment and its volatility affect bank lending negatively, while the impact sizes differ across indicators. We also examine volatility effects on banks' loan growth as uncertainty reaches excessive levels. We highlight the role that several bank-specific variables play on bank lending and discuss to what extent uncertainty effects are transmitted on credit growth through them.     

Lending Booms and Lending Standards

We examine how the informational structure of loan markets interacts with banks' strategic behavior in determining lending standards, lending volume, and the aggregate allocation of credit. We show that, as banks obtain private information about borrowers and information asymmetries across banks decrease, banks may loosen their lending standards, leading to an equilibrium with deteriorated bank portfolios, lower profits, and expanded aggregate credit. These lower standards are associated with greater aggregate surplus and greater risk of financial instability. We therefore provide an explanation for the sequence of financial liberalization, lending booms, and banking crises observed in many emerging markets.     

Green credit policy and corporate access to bank loans in China: The role of environmental disclosure and green innovation

This research assesses the effectiveness of China's green credit policy. We explore whether firms with better external environmental disclosure and internal green innovation receive more bank loans because of green credit, and utilize a panel of 1086 listed Chinese manufacturing enterprises from 2012 to 2017 to test our hypotheses. The results suggest that firms with higher environmental disclosure quality do not obtain more loans, and only green innovation promotes access to corporate loans. We show that the underlying cause of this phenomenon is corporate green-washing, which is prevalent in soft environmental disclosure and hinders enterprises from obtaining more loans. Our findings contribute to the literature on green credit policy, corporate green innovation, environmental disclosure, and green-washing, and provide a reference for companies, banks, and governments to make decisions.     

Monetary policy,bank lending and corporate investment

The purpose of this study is to shed light on the chain of causality from macroeconomic financial policy to the microeconomic investment function. Concretely, we aim to provide an in-depth analysis of the relationships between the monetary policy of central banks, the loan policy of commercial banks, and the investment behavior of firms. We focus on countries that conduct their monetary policy under the inflation-targeting framework. Our empirical analysis with data from Germany, Switzerland and Thailand provides several new insights. First, after controlling for the US monetary policy, the monetary policy in Germany and Thailand appears to influence the banks' lending rate in the short run (i.e. within two months), whereas the monetary policy in Switzerland seems to be ineffective at influencing the banks' lending rate in the short run. Second, our results show that the banks' lending rate has a negative effect on their loans and that this negative effect is weakened by their growth opportunities. Third, we find that the supply of bank loans plays a more pivotal role in determining firms' investment than the lending rate. Last but not least, we document that neither the lending rate nor the loan-to-assets ratio moderates the sensitivity of the firms' investment to growth opportunities.     

Green Strategy Costing: Early Days

Environmental impact and management is becoming a major priority for corporate strategists. while considerable information on corporate environmental disclosure practices in annual reports is now available, little is known about the internal environmental decision and control information systems in use, and corporate attitudes particularly to environmental costing. This paper reviews international green strategy developments and their implications for management accounting practice and examines environmental information and costing approaches and attitudes in a small number of Australian companies.     

Corporate Tax Enforcement Externalities and the Banking Sector

We explore whether corporate tax enforcement can affect bank lending. Specifically, we hypothesize that tax enforcement efforts aimed at small and midsized enterprises (SME) can improve their information environments, which in turn could lead to increased bank commercial lending. Exploiting the regional structure employed by the IRS until 1999, we find that the corporate tax return audit probability for SMEs is associated with greater commercial lending growth for regionally focused banks. We find similar evidence when exploiting the IRS reorganization from a regional to federal system in 2000. Further results show that tax enforcement's impact on SME informational environments is at least partially responsible for this association: The impact of tax auditing on bank lending is stronger for banks facing greater informational disadvantages and in areas where SMEs face greater hold-up problems. Finally, we find that the tax audit rate is positively associated with loan portfolio quality, suggesting that tax enforcement can lead to better loan decisions. Our findings are consistent with the tax authority's mandate having important externalities on bank lending and SME access to capital, suggesting that the benefits to tax enforcement go beyond improving tax collection.     

Loan Covenants and Relationship Banking in MBOs

This paper examines the role of accounting-based covenants and other sources of information in signalling financial distress in UK MBOs. Using an in-depth questionnaire and follow-up interviews to investigate the perceptions of senior UK MBO lenders, we find that: MBO loan agreements contain more covenants than general corporate lending agreements; monthly management accounts and telephone communication are more frequent first indicators of distress than are accounting-based covenant breaches; lenders with specialist MBO lending units are more likely to waive covenant breaches and less likely to recall loans in default than those without such units; syndicate members find both information flows prior to breach and subsequent action taken to be less effective than do syndicate leaders or sole lenders; and the presence of a specialist MBO lending unit provides the skills and reputation needed to establish a high degree of trust between the banks on the one hand and the MBOs and the equity houses on the other, but there is wide variety in the ways that banks manage these relationships. These findings confirm the expectation that the relatively more acute adverse selection and moral hazard problems inherent in MBO lending increase the demand for monitoring via covenants, and that the closer the lender/borrower relationship, the more effective the monitoring.     

The role of securitization in bank liquidity and funding management

This paper studies the role of securitization in bank management. I propose a new index of “bank loan portfolio liquidity” which can be thought of as a weighted average of the potential to securitize loans of a given type, where the weights reflect the composition of a bank loan portfolio. I use this new index to show that by allowing banks to convert illiquid loans into liquid funds, securitization reduces banks' holdings of liquid securities and increases their lending ability. Furthermore, securitization provides banks with an additional source of funding and makes bank lending less sensitive to cost of funds shocks. By extension, the securitization weakens the ability of the monetary authority to affect banks' lending activity but makes banks more susceptible to liquidity and funding crisis when the securitization market is shut down.     

Mortgage Lending,Default, and the Community Reinvestment Act

The Community Reinvestment Act (CRA) encourages banks to lend to low- and moderate-income individuals. This paper estimates the effect of the CRA on mortgage lending, exploiting variation in the set of banks whose lending performance is assessed in a given neighborhood due to redefinitions of Metropolitan Statistical Areas in 2003. Incorporating a typical tract into one additional banks' assessment area increased mortgage lending there by approximately 2%. Lending to low-income borrowers was particularly affected. While income-conditional default risk was little changed, CRA-induced loans were riskier than average, due to their borrowers' lower incomes.     

Transmission Effects of ESG Disclosure Regulations Through Bank Lending Networks

This paper studies whether and how environmental, social, and governance (ESG) disclosure regulations imposed on banks generate transmission effects along the lending channel. I use a setting of U.S. firms borrowing from non-U.S. banks and exploit the staggered adoption of ESG disclosure regulations in banks’ home countries. I find that exposed borrowers of affected banks improve their environmental and social (E&S) performance following the disclosure mandate. Consistent with banks enhancing both their engagement and selection activities, affected banks impose more environmental action covenants in loan contracts, and they are more likely to terminate a borrower with bad E&S records following the regulation. Further evidence shows that the transmission effects are stronger when a disclosure regulation is well-enforced (as indicated by a greater increase in banks’ disclosure) and among borrowers with greater switching costs. Collectively, the findings document the role of lending relationships in transmitting the real effect of ESG disclosure regulations from banks to borrowing firms.