Debtholder monitoring incentives and bank earnings opacity

Piotr Danisewicz, Danny McGowan, Enrico Onali, Klaus Schaeck

Research output: Contribution to journalArticleScientificpeer-review


We exploit exogenous legislative changes that alter the priority structure of different classes of debt to study how debtholder monitoring incentives affect bank earnings opacity. We present novel evidence that exposing nondepositors to greater losses in bankruptcy reduces earnings opacity, especially for banks with larger shares of nondeposit funding, listed banks, and independent banks. The reduction in earnings opacity is driven by a lower propensity to overstate earnings and is more pronounced among larger banks and in banks with more real estate loan exposure. Our findings highlight the importance of creditors’ monitoring incentives in improving the quality of information disclosure.
Original languageEnglish
Pages (from-to)1408-1445
JournalJournal of Financial and Quantitative Analysis
Issue number4
Publication statusPublished - Jun 2021
Externally publishedYes


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