Robert Mathieu

A note on: Capital adequacy and the information content of term loans and lines of credit

Abstract This study examines the information content conveyed by the disclosure of credit agreements in a Canadian setting. We argue that the introduction of the 1988-capital adequacy requirements lead banks to reduce their level of commitment at the issuance of lines of credit to avoid their inclusion in the calculation of the capital ratio. As a result, after 1988, the disclosure of lines of credit is expected to be less informative than the disclosure of term loans since banks may exert less effort to screen and monitor firms. Our results are consistent with the argument that the difference between the market reactions at the disclosure of term loans and lines of credit is significant after 1988. We also provide evidence that firm size and concentration of borrowing affect the market reaction at the disclosure of bank credit agreements.

Impact of FDICIA internal controls on bank risk taking

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 was designed, among other things, to introduce risk-based deposit insurance, increase capital requirements, and improve banks’ internal controls. Of particular interest in this study are the requirements for annual audit and reporting of management’s and auditor’s assessment of the effectiveness of internal control for banks with

Audit Quality and Banks' Assessment of Disclosed Accounting Information

500 million or more in total assets (raised to

Outside director remuneration and the decision to grant CEO stock options

1 billion in 2005). We study the impact of these requirements on banks’ risk-taking behavior prior to the recent financial crisis and the consequent implications for bank failure and financial trouble during the crisis period. Using a sample of 1138 banks, we provide evidence that banks required to comply with the FDICIA internal control requirements have lower risk taking in the pre-crisis period. Specifically, the volatility of net interest margin, the volatility of earnings, and Z score show less risk-taking behavior. Furthermore, these banks are less likely to experience failure and financial trouble during the crisis period.

Social Capital and Bank Stability

The objective of this paper is to investigate whether banks view the information on the off-balance sheet liabilities (specifically, operating leases) disclosed in the notes to the financial statements as more reliable when it is audited by brand name auditors (i.e. a Big 4 audit firm). To the extent that banks assess a higher likelihood that the financial statements could have material misstatements if it is not audited by a Big 4 audit firm, they should charge a higher interest rate on private loans. Our findings suggest that the impact of operating leases on the interest rate is higher if the firm is audited by non-Big 4 audit firms.

Managerial Incentives for Income Smoothing Through Bank Loan Loss Provisions

In this paper, we compare firm-specific attributes including outside director remuneration for two groups of firms. One of these groups consists of 96 firms that did not give stock options to the CEO during the sample period 1992–2001, while the other group of 571 firms granted stock options on a consistent basis during these years. Our results indicate that for the group with stock option grants, the remuneration to outside directors was significantly higher and the CEO had longer tenure compared to the other group. These results are robust even after controlling for other economic attributes associated with the decision to grant stock options.

Productivity in 'Top-Ten' Academic Accounting Journals by Researchers at Canadian Universities

Using a sample of public and private banks, we study how social capital relates to bank stability. Social capital, which captures the level of cooperative norms in society, is likely to reduce opportunistic behavior (Jha and Chen 2015; Hasan et al. 2016) and, therefore, to act as an informal monitoring mechanism. Consistent with our expectations, we find that banks in high social capital regions experienced fewer failures and less financial trouble during the 2007–2010 financial crisis than banks in low social capital regions. In addition, we find that social capital is negatively associated with abnormal risk-taking and positively associated with accounting transparency and accounting conservatism in the pre-crisis period of 2000–2006, indicating that risk-taking, accounting transparency, and accounting conservatism are possible channels through which social capital affected bank stability during the crisis.