Corporate misreporting and bank loan contracting |
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| Authors: | John R Graham Si Li Jiaping Qiu |
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| Institution: | 1. Fuqua School of Business, Duke University, Durham, NC 27708, USA;2. NBER, MA, USA;3. School of Business and Economics, Wilfrid Laurier University, Waterloo, ON, Canada, N2L 3C5;4. DeGroote School of Business, McMaster University, Hamilton, ON, Canada, L8S 4M4 |
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| Abstract: | 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. |
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| Keywords: | G21 G32 K22 K42 |
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