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Bank Relationships and the Value Relevance of the Income Statement: Evidence from Income‐Statement Conservatism
Author(s) -
Choi Wooseok
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2007.02023.x
Subject(s) - income statement , statement (logic) , relevance (law) , comprehensive income , conservatism , financial statement analysis , financial statement , statement of changes in financial position , economics , accounting , debt , bank statement , value (mathematics) , business , actuarial science , public economics , finance , financial analysis , gross income , political science , balance sheet , accounting information system , financial accounting , law , audit , tax reform , politics , disbursement , state income tax , machine learning , computer science
This study examines the effects of a firm's debt financing decision on the informativeness of the income statement. This study specifically examines the association between a firm's bank dependence and the value relevance of the income statement by investigating the income‐statement conservatism of firms with bank loans. Focusing on relatively small businesses, this study finds that income‐statement conservatism, measured as timely loss recognition, is increasing in a firm's bank dependence. This study also finds that the value relevance of the income statement is increasing in a firm's bank dependence. The findings of this paper suggest that the usefulness of the income statement varies with a firm's bank dependence, indicating that the value relevance of the income statement is a function of a firm's debt financing decision. The findings further suggest that bank relationships affect the value relevance of the income statement through their influence on income‐statement conservatism.