Economic Growth and Financial Statement Verification
We use a proprietary data set of financial statements collected by banks to examine whether economic growth is related to the use of financial statement verification in debt financing. Exploiting the distinct economic growth and contraction patterns of the construction industry over the years 2002–2...
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| Format: | Article |
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Wiley
2019
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| Online Access: | http://hdl.handle.net/1721.1/120980 https://orcid.org/0000-0003-2517-1685 |
| _version_ | 1811077541508677632 |
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| author | Lisowsky, Petro Minnis, Michael Sutherland, Andrew Gordon |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Lisowsky, Petro Minnis, Michael Sutherland, Andrew Gordon |
| author_sort | Lisowsky, Petro |
| collection | MIT |
| description | We use a proprietary data set of financial statements collected by banks to examine whether economic growth is related to the use of financial statement verification in debt financing. Exploiting the distinct economic growth and contraction patterns of the construction industry over the years 2002–2011, our estimates reveal that banks reduced their collection of unqualified audited financial statements from construction firms at nearly twice the rate of firms in other industries during the housing boom period before 2008. This reduction was most severe in the regions that experienced the most significant construction growth. These trends reversed during the subsequent housing crisis in 2008–2011 when construction activity contracted. Moreover, using bank- and firm-level data, we find a strong negative (positive) relation between audited financial statements during the growth period, and subsequent loan losses (construction firm survival) during the contraction period. Collectively, our results reveal that macroeconomic fluctuations produce temporal shifts in the overall level of financial statement verification and temporal shifts in verification are related to bank loan portfolio quality and borrower performance. |
| first_indexed | 2024-09-23T10:44:40Z |
| format | Article |
| id | mit-1721.1/120980 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T10:44:40Z |
| publishDate | 2019 |
| publisher | Wiley |
| record_format | dspace |
| spelling | mit-1721.1/1209802022-09-30T22:41:12Z Economic Growth and Financial Statement Verification Lisowsky, Petro Minnis, Michael Sutherland, Andrew Gordon Sloan School of Management Sutherland, Andrew Gordon We use a proprietary data set of financial statements collected by banks to examine whether economic growth is related to the use of financial statement verification in debt financing. Exploiting the distinct economic growth and contraction patterns of the construction industry over the years 2002–2011, our estimates reveal that banks reduced their collection of unqualified audited financial statements from construction firms at nearly twice the rate of firms in other industries during the housing boom period before 2008. This reduction was most severe in the regions that experienced the most significant construction growth. These trends reversed during the subsequent housing crisis in 2008–2011 when construction activity contracted. Moreover, using bank- and firm-level data, we find a strong negative (positive) relation between audited financial statements during the growth period, and subsequent loan losses (construction firm survival) during the contraction period. Collectively, our results reveal that macroeconomic fluctuations produce temporal shifts in the overall level of financial statement verification and temporal shifts in verification are related to bank loan portfolio quality and borrower performance. Sloan School of Management University of Illinois at Urbana-Champaign (PricewaterhouseCoopers Faculty Fellowship) 2019-03-15T14:17:21Z 2019-03-15T14:17:21Z 2017-09 2019-03-01T16:29:33Z Article http://purl.org/eprint/type/JournalArticle 0021-8456 http://hdl.handle.net/1721.1/120980 Lisowsky, Petro, Michael Minnis, and Andrew Sutherland. “Economic Growth and Financial Statement Verification.” Journal of Accounting Research 55, no. 4 (March 21, 2017): 745–794. https://orcid.org/0000-0003-2517-1685 http://dx.doi.org/10.1111/1475-679X.12165 Journal of Accounting Research Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Wiley MIT web domain |
| spellingShingle | Lisowsky, Petro Minnis, Michael Sutherland, Andrew Gordon Economic Growth and Financial Statement Verification |
| title | Economic Growth and Financial Statement Verification |
| title_full | Economic Growth and Financial Statement Verification |
| title_fullStr | Economic Growth and Financial Statement Verification |
| title_full_unstemmed | Economic Growth and Financial Statement Verification |
| title_short | Economic Growth and Financial Statement Verification |
| title_sort | economic growth and financial statement verification |
| url | http://hdl.handle.net/1721.1/120980 https://orcid.org/0000-0003-2517-1685 |
| work_keys_str_mv | AT lisowskypetro economicgrowthandfinancialstatementverification AT minnismichael economicgrowthandfinancialstatementverification AT sutherlandandrewgordon economicgrowthandfinancialstatementverification |