Mandatory Bank Disclosures and Credit Access

• In Event: Bank financial reporting and lending decisions

Abstract

This paper examines whether and how mandated bank disclosures affect the supply
of credit to the real economy. We exploit the ECB Loan-Level Reporting Initiative as
a shock to bank disclosures, and use survey data on European small businesses to
identify credit supply. We find that in regimes with heightened mandated bank
disclosures, borrowers 1) receive greater funding, conditional on applying for a bank
loan, 2) are less likely to be discouraged from applying for financing, and 3) are more
optimistic about future credit access. Treatment banks raise more capital posttransparency,
and our results are stronger for systems in which bank balance sheets
are illiquid, consistent with transparency alleviating the capital market frictions banks
face. We also find that companies whose relationship banks provide loan-level
disclosures, borrow, invest, and hire more, relative to the borrowers in the same
country and industry.

Authors

• Karthik Balakrishnan, London Business School

• Aytekin Ertan, London Business School