Debtholder monitoring incentives and bank earnings opacity

Research output: Contribution to journalArticle



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 larger real estate loan exposure. Our findings highlight the importance of creditors’ monitoring incentives in improving the quality of information disclosure.


Original languageEnglish
JournalJournal of Financial and Quantatative Analysis
Early online date12 May 2020
Publication statusE-pub ahead of print - 12 May 2020


  • debtholder monitoring incentives, bank earnings opacity, earnings management, debt structure