Cross-Country Differences in Accounting Principles: Do Lenders Have a Contracting Preference?

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Abstract

"This paper studies whether lenders exhibit a preference for accounting standards in an environment of cross-country differences in accounting standards. I investigate the correlation between accounting standards specified in private lending agreements and lender country of domicile. The observed accounting principles stated in a debt contract represent a cost-benefit tradeoff made by contracting parties and indicate a revealed preference for accounting standards. I also examine loan spread, maturity, and financial covenant use when US lenders contract on US accounting principles. Studying these relations provides evidence of how differences in accounting standards affect the costs and benefits of contracting that underlie whether lenders favor one set of accounting standards over another.

Author

• Bryan Graden, Illinois State University