Cross-Border Lending and the Importance of Timely Loss Recognition

Abstract

Objective: This study investigates the impact of a firm's financial reporting quality on foreign lenders' participation in loan offerings. Design and Methodology:The study examines syndicated loan data and analyzes whether timely loss recognition, a measure of financial reporting conservatism, influences foreign lenders' decision to participate in a loan syndicate. The study also considers the role of "soft" information and lender proximity to the borrower country. Findings and Recommendations:The results show that foreign lenders prefer borrowers with reliable accounting information and timely loss recognition. Such recognition reduces information asymmetry and allows foreign lenders to rely more on public financial reports. Timely loss recognition is even more important for foreign lenders facing informational disadvantages due to geographical distance. The findings suggest that firms can attract more foreign lending by improving financial reporting quality and recognizing losses in a timely manner. Originality and Value:This study contributes to the literature by providing insights into the factors influencing foreign lenders' lending decisions. The results highlight the importance of financial reporting quality and loss recognition timeliness in mitigating information asymmetry in cross-border lending. The findings have implications for policymakers and firms seeking foreign financing.