Strategic Entry Decisions, Accounting Signals, and Risk Management

Zou, Youli

doi:10.2139/ssrn.3134721

Cited by 3 publications

(2 citation statements)

References 117 publications

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“…Our paper contributes to the literature on the relation between entry threat and firms' financial reporting choices (Darrough (1993), Verrecchia (1990)). Incumbents facing entry threat can deter entry by conveying either that they are strong (Milgrom and Roberts (1982), Zou (2018)) or that the market is undesirable (Darrough and Stoughton (1990)). We provide evidence that increased entry threat induces incumbent banks to record lower loan-loss provisions to convey better loan-underwriting quality, on average, especially in counties with a high proportion of heterogeneous loans.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Credit Competition on Banks’ Loan-Loss Provisions

Dou¹,

Ryan²,

Zou³

2018

J. Financ. Quant. Anal.

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Exploiting differential interstate-branching deregulation across contiguous counties of adjacent states, we investigate the effect of entry threat on incumbent banks’ loan-loss provisions. Incumbents exposed to entry threat have offsetting incentives; lower provisions make their loan-underwriting quality appear better, deterring entry, but make local economic conditions appear better, encouraging entry. We find that the incentive to increase apparent loan-underwriting quality dominates on average. We further find that this incentive is stronger in counties with a higher proportion of heterogeneous loans, while the other incentive dominates in counties with both low heterogeneous loans and highly volatile economic conditions.

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Section: Introductionmentioning

confidence: 99%

The Effect of Credit Competition on Banks’ Loan-Loss Provisions

Dou¹,

Ryan²,

Zou³

2018

J. Financ. Quant. Anal.

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“…Finally, Campello et al (2011) show that SFAS 161 disclosures improved stock market efficiency. However, several studies consider the firm's proprietary costs resulting from the enhanced derivatives disclosure (Khan et al, 2018;Zou, 2019). Besides, Chiorean (2016) finds that the mandatory adoption of SFAS 161 has real effects on firms' risk management strategy, resulting in lower overall derivatives use.…”

Section: Accounting and Disclosure For Derivatives And Hedgingmentioning

confidence: 99%

FASB Disclosure and Bank Loan Contracting: Evidence from Derivative and Hedging Footnotes

Chen¹,

Zhou²,

Han

2021

SSRN Journal

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Information Externalities of SFAS 161: Evidence from Supply Chains

Chen

Dou

Zou³

2020

The Accounting Review

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Effective in 2009, SFAS 161 requires enhanced disclosures about derivative use and hedging activities. We test for changes to the information environment of firms whose disclosure policy is unaffected by this standard directly. Using a sample of non-users of derivatives, we find an increase in stock liquidity after their critical customers expand derivative disclosures under SFAS 161. The effect persists for one year and becomes insignificant in subsequent years as the firms dial back their voluntary disclosure. The effect is also more salient for firms that have stronger economic links with their customers and for firms whose customers exhibit more significant improvements in derivative disclosures. The findings suggest that the mandatory derivative disclosures due to SFAS 161 lead to short-term positive information externalities along supply chains.

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Strategic Entry Decisions, Accounting Signals, and Risk Management

Cited by 3 publications

References 117 publications

The Effect of Credit Competition on Banks’ Loan-Loss Provisions

The Effect of Credit Competition on Banks’ Loan-Loss Provisions

FASB Disclosure and Bank Loan Contracting: Evidence from Derivative and Hedging Footnotes

Information Externalities of SFAS 161: Evidence from Supply Chains

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