HUNG, MINGYI, Lin, Yupeng, Wang, Lynn and Zhang Zilong. “The Impact of Bank Financing on Borrowers’ Voluntary Disclosures and Real Investments" Management Science, Forthcoming.

Abstract

This paper examines how an increase in bank lending affects firms’ voluntary disclosures. Exploiting the unconventional liquidity injections by the European Central Bank, we find that US borrowers of EU banks increase management capital expenditure (capex) forecasts following the liquidity injections, relative to other US borrowers. Further supporting the notion that increased relationship lending motivates managers to issue capex forecasts to elicit market feedback on real investments, we find that the association between capex adjustments and stock market reactions to these forecasts increases following the liquidity injections. Overall, we contribute to the literature by documenting a different channel through which bank liquidity affects borrowers’ disclosure choices and providing new micro-evidence of monetary interventions.