The effects of firm-initiated clawback provisions on bank loan contracting |
| |
Authors: | Lilian H Chan Kevin CW Chen Tai-Yuan Chen |
| |
Institution: | 1. Faculty of Business and Economics, The University of Hong Kong, Pok Fu Lam Road, Hong Kong;2. Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong |
| |
Abstract: | 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. |
| |
Keywords: | G21 G30 M21 |
本文献已被 ScienceDirect 等数据库收录! |
|