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.     

Cost stickiness and bank loan contracting

This study examines whether and, if so, how borrowers' asymmetric cost behavior (i.e., cost stickiness) is factored into the price and non-price terms of bank loan contracts. We provide strong and reliable evidence that ex-ante, the loan spread increases with cost stickiness after controlling for other known determinants of loan contract terms. Moreover, we find that the effect is more pronounced for borrowers with higher default risk and higher information risk. This is consistent with borrowers' asymmetric cost behavior increasing lenders' uncertainty about the liquidation value of assets, and hence, lenders need to be compensated ex-ante. Additionally, we conjecture that higher cost stickiness may increase the need for ex-post monitoring. Consistent with this conjecture, we find some evidence that lenders impose tighter non-price terms on firms with stickier costs. This study integrates cost stickiness research with the banking literature by showing that banks incorporate borrowers' asymmetric cost behavior into loan contracting terms.     

CEO overconfidence and bank loan contracting

In this paper, we examine the effect of managerial overconfidence on bank loan spreads. Our theoretical model and empirical results support that firms with highly overconfident CEOs have lower loan spreads and that the reducing effect of these CEOs on the spread is more pronounced when the loan contracts have collateral or covenants. Unlike firms with highly overconfident CEOs, firms with moderately overconfident CEOs do not receive lower loan spreads. We perform various tests to alleviate the concerns about endogeneity, and the results are robust. The results are consistent with the idea that highly overconfident CEOs are more willing to pledge collateral and accept covenants in exchange for a reduction in their loan rate.     

Management earnings forecasts and bank loan contracting

We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine‐month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.     

Media,reputational risk,and bank loan contracting

We investigate how reputational risk arising from traditional and online media coverage of Corporate Social Irresponsibility (CSI) conducts affects the cost of borrowing and what are the factors that can mitigate or amplify this effect. First, we find that negative media attention increases bank loan costs and show that this result is robust to endogeneity concerns and alternative measures of key variables. Next, we find that the impact of negative media attention on bank loan costs is more severe if the misconduct involves borrowers with prior high Corporate Social Responsibility (CSR) reputations, while it is smaller when prior lending relationships exist between the lead arranger and the borrower.     

Book-tax differences,CEO overconfidence,and bank loan contracting

Review of Quantitative Finance and Accounting - We assess information embedded in the difference between the reported book income and the taxable income (the book-tax difference, BTD hereafter)...     

The effects of firm-initiated clawback provisions on bank loan contracting

Although firm-initiated clawbacks reduce accounting manipulation, they also induce managers to engage in suboptimal activities (e.g., reduce research and development (R&D) expenses) to achieve earnings targets. To assess the effectiveness of clawback provisions, we examine their impact from debtholders' point of view. We find that banks use more financial covenants and performance pricing provisions in the loan contracts and decrease interest rates after firms initiate clawbacks. Moreover, we also find that loan maturity increases and loan collateral decreases subsequent to clawback adoption. Taken together, our findings indicate that firm-initiated clawback provisions enhance financial reporting quality, thereby reducing the information uncertainty that financing providers face.     

Earnings performance of major customers and bank loan contracting with suppliers

Using a sample of 3725 loan facility–years for supplier firms that have financial data on their major customers during the period 1995–2011, this study investigates whether the earnings performance of major customers has effect on the price and nonprice terms of loans to the supplier firms. We find that various contracting terms are more favorable for loans to supplier firms whose major customers have higher return on assets (ROA). More importantly, we find that the effect of major customers’ earning performance on loan contracting terms is weaker for the borrowers with prior loan relationships with banks, while it is stronger for the borrowers that are highly dependent on their major customers. Our results suggest that banks take into account major customers’ earnings performance when contracting with their supplier firms, and the informativeness of customer earnings varies with the nature and strength of the customer–supplier relationships.     

Internal governance,legal institutions and bank loan contracting around the world

Using a sample of non-U.S. firms from 22 countries during 2003–2007, we examine the effect of firm-level governance on various features of loan contracting in the international loan market. We find that banks charge lower loan rates, offer larger and longer-maturity loans, and impose fewer restrictive covenants to better-governed firms. We also find that the favorable effect of firm-level governance on some loan contracting terms is stronger in countries with strong legal institutions than in countries with weak legal institutions. Our results suggest that banks view a borrower's internal governance as a factor that mitigates agency and information risk, and that country-level legal institutions and firm-level governance mechanisms complement each other in influencing loan contracting terms.     

Monitoring and bank loan pricing

In this paper, we examine the influence of contract costs on the pricing of bank loans. We find that the loan spread depends on a bank's screening and monitoring incentives, which varies across differentially regulated classes of banks. This leads to significant price disparities in the loan market. In particular, the US branches of Japanese banks participate in syndicated lending to US firms that charge significantly higher spreads compared to syndicated loans to US firms without Japanese participation. This pricing disparity is primarily due to regulatory differences. We also find that as specialized intermediaries, banks price loans based primarily on their own monitoring.     

Offshore operations and bank loan contracting: Evidence from firms that set up subsidiaries in offshore financial centers

We examine the effects of a multinational firm's subsidiary operations in offshore financial centers (OFCs) on bank loan contracting terms. Using a propensity score matched cross-country sample of firms with and without OFC subsidiaries, we find that firms with OFC subsidiaries receive less favorable loan terms than firms without OFC subsidiaries. The results from a difference-in-differences analysis and an analysis of a firm's mutation from a non-OFC firm to an OFC firm support the causal effect of offshore operations on the unfavorable loan terms. Furthermore, focusing on firms with OFC subsidiaries, we find that the intensity of offshore operations affects loan terms unfavorably. We also find that the unfavorable effect is more pronounced for more opaque firms and for firms that are headquartered in countries or jurisdictions with weaker legal enforcement. Our findings indicate that banks view offshore operations of borrowers as a credit risk-increasing factor.     

Corporate legal structure and bank loan spread

This study examines how a firm's corporate legal structure may affect its borrowing costs. Corporate legal structure refers to the legal fragmentation of a firm into multiple, separately incorporated entities. This fragmentation is bound to be a factor when lenders determine the pricing of debt and design of contract terms because they can enter into legally enforceable agreements only with specific legal entities. Using a sample of private loans to parent companies in the United States, I find that a more complex corporate legal structure is associated with higher loan spread. The findings are robust to several firm and loan characteristics and are incremental to the effects of other forms of organizational structure, namely business and geographic diversification. Subsequent evidence suggests that the effect of a corporate legal structure on borrowing costs is, at least partly, explained by recovery risk.     

TARP funds distribution and bank loan supply

This paper investigates the determinants of the Troubled Asset Relief Program (TARP) funds distribution to banks and the stimulus effect of TARP investments on credit supply in the economy. Using banks’ political and regulatory connections as instruments, this paper finds that TARP investments increased bank loan supply by an annualized rate of 6.36% for banks with below median Tier 1 capital ratios. This increase is found in all major types of loans and can be translated into $404 billion of additional loans for all TARP banks. On average, TARP banks employed about one-third of their TARP capital to support new loans and kept the rest to strengthen their balance sheets. Furthermore, there is little evidence that loans made by TARP banks had lower quality than those by non-TARP banks. In sum, this paper shows a positive stimulus effect of TARP on credit supply during the 2008–2009 financial crisis.     

The design of bank loan contracts

The unique characteristics of bank loans emerge endogenouslyto enhance efficiency in a model of renegotiation between aborrower and a lender in which there is the potential for moralhazard on each side of the relationship. Firm risk is endogenousand renegotiated interest rates on the debt need not be monotonein firm risk. The initial terms of the debt are not set to pricedefault risk but rather are set to efficiently balance bargainingpower in later renegotiation. Loan pricing may be nonlinear,involving initial transfers either from the borrower to thebank or from the bank to the borrower.     

Bank accounting conservatism and bank loan pricing

This paper studies the effects of bank accounting conservatism on the pricing of syndicated bank loans. We provide evidence that banks timelier in loss recognition charge higher spreads. We go onto consider what happens to the relationship between spreads and timeliness in loss recognition during the financial crisis. During the crisis, banks timelier in loss recognition increase their spreads to a lesser extent than banks less timely in loss recognition. These findings are broadly consistent with the argument that conditional accounting conservatism serves a governance role. The policy implication is that banks timelier in loss recognition exhibit more prudent and less pro-cyclical loan pricing behaviour.     

央行重拳出击房贷新政规范行业发展

以目前房地产贷款余额1/4违规,就意味着全国有4500亿元贷款是违规的,无怪乎中央领导去年下半年以来多次提到,要防止房地产过热,防止房地产出现泡沫; 有些看上去颇具实力的地产大亨,其实,开发的项目却几乎全是银行的钱堆起来的,这种游戏能持续玩下去的前提是建起的房子要能够卖出去。一旦项目空置或烂尾,“以小博大”的游戏就将难以为继,并最终导致银行大量呆坏账: 上个世纪末,日本的房地产泡沫破灭,使得日本商业银行迟迟无法走出巨大的呆帐危机,也使得日本经济的复苏遥遥无期。香港的情况也是如此,目前香港经济迟迟不能够复苏,是与香港房地产泡沫破灭分不开的; 新房贷政策对资产负债率高和自有资金不足的中小企业会有不良影响,从某种意义上可能会促进房地产企业向更大规模聚集。从长远来看,对中国房地产发展有促进作用,未尝不是好事。 请看北京大学国家高新区发展战略研究院张海生、王瑶的评述     

中小企业融资中的银企关系

多年来,中小企业融资一直处于尴尬局面,备受融资难的困扰。据国家信息中心和国务院中国企业家调查系统等机构的调查,中小企业短期贷款缺口大,长期贷款更无着落。这主要是各大银行贷款一直"嫌贫爱富"、"嫌小爱大"。但近两年以来,各商业银行开始大力拼抢小企业信贷市场,使长期被银行资金所冷落的中小企业,成为了中国金融机构眼中的"香饽饽"。中小     

Corporate ownership structure and bank loan syndicate structure

Using a novel data set on corporate ownership and control, we show that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant impact on the concentration and composition of the firm's loan syndicate. When the control-ownership divergence is large, lead arrangers form syndicates with structures that facilitate enhanced due diligence and monitoring efforts. These syndicates tend to be relatively concentrated and composed of domestic banks that are geographically close to the borrowing firms and that have lending expertise related to the industries of the borrowers. We also examine factors that influence the relation between ownership structure and syndicate structure, including lead arranger reputation, prior lending relationship, borrowing firm informational opacity, presence of multiple large owners, laws and institutions, and financial crises.     

The determinants of bank loan recovery rates

Using Moody’s Ultimate Recovery Database, we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than are borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient.