Abstract
This study examines the effect of financial reporting transparency for securitization on banks’ lending decisions. I hypothesize that transparency affects bank lending decisions through its effect on bank stakeholders’ ability to monitor and discipline bank risk-taking. Using loan-level data from the Home Mortgage Disclosure Act database and FASB securitization accounting pronouncements as transparency shocks, I find that securitizing banks originate riskier mortgages following accounting pronouncements that allow more opacity and less risky mortgages following pronouncements that enhance transparency. Moreover, I show that manager-shareholder alignment, regulatory constraints, and market discipline moderate the effect of transparency on bank lending decisions.
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