Lenders' Demand for Consolidating Financial Statements from Parent Borrowers.

For financial reporting, a parent corporation is required to provide consolidated financial statements, treating the parent and its majority-owned subsidiaries as one reporting entity. Loan contracts, however, are signed by legal entities. We investigate when lenders explicitly require a parent borrower to periodically provide consolidating financial statements—disaggregated information with the parent's information in the first column and the consolidated information in the last column—during the term of a loan. We find that 28.1 percent of the loan contracts include this covenant. The covenant is more likely when borrower-lender information asymmetry is higher; the loan is secured by collaterals or subsidiary pledges or guaranteed by subsidiaries; the borrower has heterogeneous subsidiaries or is smaller; or the loan has a revolving line of credit, fewer lenders, or a longer duration. Our findings suggest that lenders use contracting features to address the loss of information in the consolidated financial reporting model. Data Availability: All data are available from identified public sources. JEL Classifications: M2; M4; G3. [ABSTRACT FROM AUTHOR]