TAKEOVER EXPOSURE, AGENCY, AND THE CHOICE BETWEEN PRIVATE AND PUBLIC DEBT

We examine how governance characteristics are related to the corporate choice between public and private debt. We find that firms with fewer takeover defenses and larger outside blockholder ownership are more likely to borrow from banks and to issue 144A debt. We also document that public debt cost is more sensitive to takeover exposure than bank debt cost. These results are consistent with the hypothesis that banks mitigate the expected negative effect of takeovers on debt value through covenants and debt renegotiations. Moreover, we show that firms with weaker internal monitoring are less likely to borrow from banks.     

CORPORATE BOARDS AND BANK LOAN CONTRACTING

We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance‐pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms.     

IPO underwriting and subsequent lending

This study investigates the relation between IPO underwriting and subsequent lending. We find that when a bank underwrites a firm’s IPO, the bank is more likely to provide the issuer with future loans at a lower cost, compared to banks without an IPO underwriting relationship. The evidence also suggests that the underwriting banks share information surplus with the IPO firms in the post-IPO loans, supporting the cost-saving hypothesis. Overall, the evidence for the relation between prior IPO underwriting and subsequent lending supports the notion that firms can derive value from investment bank relationships.     

Bank discrimination, holding bank ownership, and economic consequences: Evidence from China

This paper finds that compared with Chinese state-owned firms, non-state-owned firms have a greater propensity to hold significant ownership in commercial banks. These results are consistent with the notion that because non-state-owned firms are more likely to suffer bank discrimination for political reasons, they tend to address their financing disadvantages by building economic bonds with banks. We also find that among non-state-owned firms, those that hold significant bank ownership have lower interest expenses, and are less likely to increase cash holdings but more likely to obtain short-term loans when the government monetary policy is tight. These results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times. Finally, we find that non-state-owned firms with significant bank ownership have better operating performance. Overall, we find that firms can reduce discrimination through holding bank ownership.     

Product market relationships and cost of bank loans: Evidence from strategic alliances

This paper examines the relation between strategic alliances and non-financial firms’ bank loan financing. We construct several measures to capture firms’ alliance activities. The key finding is that borrowing firms with active alliance involvement experience lower cost of bank loans. The reduction of borrowing cost is strongest for financially unconstrained firms and firms with high G-index and intensive monitoring from institutional investors. We also relate various characteristics of alliance agreements to the cost of bank borrowing, and find evidence supporting market power hypothesis and organizational flexibility hypothesis. We further report that allying with a prestigious partner (i.e., S&P 1500 firms) provides certification effect that lowers bank loan cost. In addition, firms positioned in the center of the alliance network enjoy lower cost of bank loans. Lastly, we document that firms engaging in alliance activities expand their debt capacity and are less likely to use collaterals and covenants in their bank loan contracts.     

Corporate Loan Securitization and the Standardization of Financial Covenants

We examine whether syndicated loans securitized through collateralized loan obligations (CLOs) have more standardized financial covenants. We proxy for the standardization of covenants using the textual similarity of their contractual definitions. We find that securitized loans are associated with higher covenant standardization than nonsecuritized institutional loans. In addition, we show that CLOs with more diverse or frequently rebalanced portfolios are more likely to purchase loans with standardized covenants, potentially because standardization alleviates information processing costs related to loan monitoring and screening. We also document that covenant standardization is associated with greater loan and CLO note rating agreement between credit rating agencies, further supporting the relation between lower information costs and covenant standardization. Overall, our study provides evidence that loan securitization is related to the design of standardized financial covenants.     

Bank competition and the cost of bank loans

I comprehensively study the effect of bank competition on the cost of bank loans using U.S. bank loan data from 1995 to 2010. The cost of bank loans is analyzed with regard to loan spreads and covenant intensity. I show that loan spreads and covenant intensity are negatively related to bank competition. I also find that non-investment grade and financially constrained firms benefit more from bank competition than investment grade and financially unconstrained firms do. Lenders with low market power are more willing to reduce loan price than lenders with high market power in competitive lending markets. The results suggest that lenders give favorable loan terms to borrowers in competitive loan markets.     

Bank ownership and executive perquisites: New evidence from an emerging market

Direct bank ownership is a common practice in emerging markets. The current paper studies how bank ownership affects firm performance through corporate executive perquisites (perks) in China, a leading emerging economy. In addition to common factors known to influence the level of executive perks, we find a significantly positive link between bank ownership of company shares and executive perquisites. Further analyses suggest that higher level of executive perquisites hurt firm operating efficiency. Specifically, perks are positively associated with interest rate paid by the firms. We find some evidence consistent with the notion that the conflict of interests that banks face as both lenders and shareholders in the emerging markets induces banks to play less effective monitoring if they are concerned with the security of their loans or aim to obtain better arrangement for their loans. Our results reveal a particular mechanism through which bank ownership influences firm decisions and performance.     

Co-opted directors,covenant intensity,and covenant violations

This study investigates how the level of board co-option might affect a borrowing firm's ex ante covenant intensity and ex post covenant violations. As the fraction of co-opted directors (those who joined the board after the CEO assumed office) increases, creditors include more covenant restrictions in their loan contracts, indicating that more co-opted boards are considered as weaker monitors. The results remain robust to various approaches accounting for endogeneity, and are not driven by alternative explanations such as CEO tenure, director inexperience, or CEO's involvement in the nominating committee. Ex post tests reveal that firms with more co-opted boards are more likely to violate loan covenants after controlling for covenant intensity. Non-co-opted independent directors appear to be the most effective monitors in mitigating covenant violations among revolving loans and loans to unrated borrowers.     

Association Between Borrower and Lender State Ownership and Accounting Conservatism

We examine the association between borrower (firm) and lender (bank) state ownership and accounting conservatism for a sample of Chinese firms. We hypothesize that state‐owned enterprises (SOEs) adopt less conservative accounting than non‐state‐owned enterprises (NSOEs) because lenders are less concerned with downside risk for SOEs than for NSOEs. We also hypothesize a negative relation between conservatism and the fraction of total loans a firm borrows from state‐owned banks (SBs) because SBs have weaker demand for assurance of sufficient net assets to cover loan repayments than non‐state‐owned banks (NSBs). We find support for both hypotheses. Further analyses reveal that: (1) firms that borrow from commercial SBs exhibit more conservative accounting than firms that borrow from policy SBs and (2) firms adopt more conservative accounting as they get more loans from banks with foreign ownership or exclusively foreign banks. However, the results of these additional analyses are to some extent sensitive to alternative measures of accounting conservatism.     

Corporate governance and capital allocations of diversified firms

We examine how various aspects of corporate governance structures affect the capital allocation inefficiency that drives the value discounts of diversified firms. Diversified firms with more effective internal or external governance mechanisms experience more efficient investment allocations at both the firm and segment levels and show less of a diversification discount. The efficiency of the investment allocation process is better for diversified firms with high board independence, low board busyness, high institutional ownership, high outside director ownership, high CEO equity-based pay, high audit quality, and strong shareholder rights. The results hold after controlling for other potential influences. Our evidence suggests that corporate governance considerations are important in assessing the relation between investment efficiency and firm value for diversified firms.     

股票流动性对公司资本结构的影响研究

本文分析了流动性对公司资本结构的影响。理论分析表明,一个公司股权交易流动性的提高,使得公司股权融资成本得以降低,公司更倾向于采用增发、配股等股权融资的方式融资,这会降低公司的财务杠杆率。同时,借鉴资本结构动态调整的思想分析,发现个股流动性越高,资本结构的调整速度越快。本文基于2002—2010沪深两市发行的非金融业A股数据,采用面板数据回归等方法研究了股票流动性等因素对公司资本结构的影响,本文的经验结果支持这一理论假设。     

公司治理与银行借款融资

本文以中国深沪两市A股上市公司为样本,检验了公司治理在银行信贷决策中的作用。通过检验公司治理水平对企业银行借款融资能力和融资成本的影响,我们发现,企业银行借款融资能力方面,无论长期借款还是短期借款,公司治理因素对企业银行借款融资能力均没有影响,银行更看重企业的经营状况。企业银行借款融资成本方面,我们发现公司治理机制中只有监事会特征和股权集中度对企业银行借款融资成本有显著影响。具体地,监事会规模越大,融资成本越低;股权集中度越高,融资成本越高。本文结果说明公司治理因素在我国银行放贷决策中的作用有限。     

Audit committee financial expertise,corporate governance,and the voluntary switch from auditor-provided to non-auditor-provided tax services

A prime objective of the SOX is to safeguard auditor independence. We investigate the relation between audit committee quality, corporate governance, and audit committees' decision to switch from permissible auditor-provided tax services. We find that firms with more independent boards, audit committees with greater accounting financial expertise, higher stock ownership by directors and institutions, that separate the CEO and Chairman of the board positions, and with higher tax to audit fee ratios are more likely to switch to a non-auditor provider. Further, we document that firms are more likely to switch prior to issuing equity. We find no evidence that broad financial expertise on audit committees is related to the switch decision, suggesting that the SEC's initial narrow definition of expertise is more consistent with the objective of the SOX. Overall, our results suggest that accounting financial expertise and strong corporate governance contribute to enhanced audit committee monitoring of auditor independence.     

The Choice of Debt Source by UK Firms

We examine the choice of borrowing source among public debt, syndicated bank loans, bilateral bank loans and non‐bank private debt. Using a sample of 400 non‐financial firms over the period 2000–2012, we find strong support for the reputational theory of borrowing source. Larger firms are more likely to borrow in public debt markets. Bank dependent firms are less likely to borrow in public debt markets and choose between bank and non‐bank private debt based on maturity, collateral available to lenders and other firm characteristics. These results are consistent with the role of borrower reputation being the primary determinant of borrowing source for UK listed firms.     

Debt maturity dispersion and the cost of bank loans

This paper examines the relation between corporate debt maturity dispersion and the pricing and terms of bank loans. Analyzing a sample of U.S. bank loans from 2002 to 2016, we find that firms with a dispersed debt maturity structure pay a lower interest rate. The rate-reduction effect is significant only for firms without a credit rating. For these firms, spreading debt maturity dates also results in lower commitment fees, fewer covenant restrictions, and less collateral in their loan contracts. The impact of debt maturity dispersion on the pricing and structure of bank loans is stronger when borrowers have higher rollover risk or when the need for monitoring is greater. Our results suggest that dispersion in debt maturity structure mitigates the agency problem associated with shareholder–creditor conflicts by reducing rollover risk and alleviating the need for monitoring, which results in borrowers receiving more favorable terms in loan contracts.     

Corporate misreporting and bank loan contracting

This paper is the first to study the effect of financial restatement on bank loan contracting. Compared with loans initiated before restatement, loans initiated after restatement have significantly higher spreads, shorter maturities, higher likelihood of being secured, and more covenant restrictions. The increase in loan spread is significantly larger for fraudulent restating firms than other restating firms. We also find that after restatement, the number of lenders per loan declines and firms pay higher upfront and annual fees. These results are consistent with banks using tighter loan contract terms to overcome risk and information problems arising from financial restatements.     

The effect of liquidity and solvency risk on the inclusion of bond covenants

Studies have analyzed the impact of firm and issue characteristics but not liquidity and solvency components of financial distress on the use of bond covenants. Using a comprehensive database of corporate bonds from 2001 to 2012, we find that firm liquidity, measured by standardized Lambda, has a negative statistical and economic impact on the inclusion of all categories and sub-categories of restrictive bond covenants. Developed from financial statement information by Emery and Lyons (1991), Lambda is designed as a coverage ratio that, under certain distribution assumptions, maps into the probability of a firm being unable to pay its short-term bills. The strongest solvency proxy is the 10-year credit default swap (CDS) spread which is significant across the categories and sub-categories for investment and payment covenants, weakly significant for the subordinated debt sub-category of the subsequent financing covenant, but strongly significant for the control poison put sub-category of event covenants. This evidence supports a model that uses SLambda as a proxy for liquidity risk and the 10-year CDS spread as a proxy for solvency risk. The liquidity/covenant relationship is dampened when firms have access to commercial paper funding or bank loans. However, during the recent financial crisis liquidity event this liquidity/covenant relationship was enhanced especially for firms which were dependent on commercial paper during this time when the commercial paper market was deteriorating.     

Boards: Does one size fit all?

This paper reexamines the relation between firm value and board structure. We find that complex firms, which have greater advising requirements than simple firms, have larger boards with more outside directors. The relation between Tobin's Q and board size is U-shaped, which, at face value, suggests that either very small or very large boards are optimal. This relation, however, arises from differences between complex and simple firms. Tobin's Q increases (decreases) in board size for complex (simple) firms, and this relation is driven by the number of outside directors. We find some evidence that R&D-intensive firms, for which the firm-specific knowledge of insiders is relatively important, have a higher fraction of insiders on the board and that, for these firms, Q increases with the fraction of insiders on the board. Our findings challenge the notion that restrictions on board size and management representation on the board necessarily enhance firm value.     

Loan underpricing and the provision of merger advisory services

This paper investigates the primary and secondary syndicated bank loan market to analyze the effect on pricing when the financial institution commingles syndicated lending with merger advisory services. In particular, we investigate the connection between the acquirer’s choice of financial advisor in a merger and future financing commitments. We find evidence of underpricing of syndicated bank loans in both the primary and secondary market. In the primary market, we show that non-acquisition loans granted by merger advisors to acquiring firms after the merger announcement date are charged a lower all-in-spread relative to acquisition loans if there has been a prior lending relationship. Consistent with this finding, we find that syndicated bank loans for non-acquisition purposes arranged by the acquirer’s advisor after the merger announcement date trade in the secondary market at a significant discount. Since the terms on these non-acquisition loans are not set upon merger announcement, they are most subject to risk shifting and underpricing agency problems. These findings offer evidence consistent with the existence of loss leader and potentially conflicted loans (priced at below-market terms) that are offered by the acquirer’s relationship bank advisor in order to win merger advisory business.