Accounting-Driven Bank Monitoring and Firms' Debt Structure: Evidence from IFRS 9 Adoption.

This article examines how the adoption of International Financial Reporting Standard (IFRS) 9, which mandates a switch from the incurred credit loss (ICL) model to the expected credit loss (ECL) model, affects firms' reliance on bank debt. Using data from 98,338 firm-year observations across 50 countries, the study finds that IFRS 9 adoption leads to more intense, accounting-driven bank monitoring, which increases the costs of borrowing from banks and results in firms reducing their reliance on bank debt by about 5% relative to preadoption levels. This reduction is more pronounced in countries with stringent regulatory bank supervision and where firms can more easily switch to public debt financing; firms also substitute bank loans with increased issuance of public senior bonds and notes. Additionally, firms that reduce bank debt reliance after IFRS 9 adoption experience declines in investment and labor employment, suggesting real economic consequences of the shift in debt structure.