Confidentiality in loan credit agreements

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ca Nguyen ◽  
Alejandro Pacheco
Keyword(s):  
Fixed Effects ◽  
Market Competition ◽  
Least Square ◽  
Loan Pricing ◽  
Product Markets ◽  
Content Type ◽  
Public Firms ◽  
Loan Contracts ◽  
Loan Spreads ◽  
Corporate Loan

PurposeThis study has two primary objectives. First, it analyzes the information content of confidentiality strictness in corporate loan credit agreements. Second, it examines how confidentiality strictness impacts covenant design, lending syndicate structure and loan pricing.Design/methodology/approachUsing a sample of 6,327 loan credit agreements originated by US public firms in the period of 1996–2017, this study measures the confidentiality strictness in loan contracts using textual analyses that capture the appearance of confidentiality-related words and the length of confidentiality provision. All regressions include relevant loan characteristics, firm-specific accounting variables, industry and year fixed effects. To address the endogeneity concern, the paper uses borrowing firms' rival cash holdings and R&D expenditures to instrument for confidentiality strictness in two-staged least square regressions.FindingsBorrowers which have higher R&D and operate in more competitive product markets have tighter confidentiality policies. Furthermore, this study reveals that confidentiality strictness is negatively associated with the imposition of financial covenants, especially performance covenants. Loan contracts for borrowers with stricter confidentiality on average have more relaxed covenant intensity, measured by the number of covenants. The study also shows that stricter confidentiality attracts finance companies, which have strong expertise in product markets of their parent firms, into the lending syndicate. However, confidentiality-conscious borrowers with higher degree of information asymmetry are subject to higher loan spreads.Originality/valueThis study provides the first examination of confidentiality policies in loan contracts and supports the idea that loan provisions are not simply made of “boilerplate” language. The results suggest that, for confidentiality-sensitive borrowers, the greater exposure to product market competition helps control managerial slack and substitute monitoring from financial markets.

Proprietary information and the cost of bank debt

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
HyunJun Na
Keyword(s):  
Least Square ◽  
Bank Loan ◽  
Content Type ◽  
Loan Contracts ◽  
Proprietary Information ◽  
Banking Deregulation ◽  
Interstate Banking ◽  
Innovative Firms ◽  
Bank Loan Contracts ◽  
The Impact

PurposeThis study explores how the firm’s proprietary information has an impact on the bank loan contracts. It explains the propensity of using the competitive bid option (CBO) in the syndicate loans to solicit the best bid for innovative firms and how it changes based on industry competition and the degree of innovations. This research also examines how the interstate banking deregulation (Interstate Banking and Branching Efficiency Act) in 1994 affected the private loan contracts for innovative borrowers.Design/methodology/approachThe study uses various econometric analyses. First, it uses the propensity score matching analysis to see the impact of patents on pricing terms. Second, it uses the two-stage least square (2SLS) analysis by implementing the litigation and non-NYSE variables. Finally, it studies the impact of the policy change of the Interstate Banking and Branching Efficiency Act of 1994 on the bank loan contracts.FindingsFirms with more proprietary information pays more annual facility fees but less other fees. The patents are the primary determinants of the usage of CBO in the syndicate loans to solicit the best bid. While innovative firms can have better contract conditions by the CBO, firms with more proprietary information will less likely to use the CBO option to minimize the leakage of private information and the severe monitoring from the banks. Finally, more proprietary information lowered the loan spread for firms dependent on the external capital after the interstate banking deregulation.Originality/valueThe findings of this research will help senior executives with responsibility for financing their innovative projects. In addition, these findings should prove helpful for the lawmakers to boost economies.

Shadow banking from China's perspective: an empirical analysis of bank-issued wealth management products

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Mehmood Raza Shah ◽  
Qiang Fu ◽  
Ghulam Abbas ◽  
Muhammad Usman Arshad
Keyword(s):  
Commercial Banks ◽  
Fixed Effects ◽  
Banking Sector ◽  
Balance Sheet ◽  
Estimation Method ◽  
Least Square ◽  
Shadow Banking ◽  
Content Type ◽  
Wealth Management ◽  
Chinese Banks

PurposeWealth Management Products (WMPs) are the largest and most crucial component of China's Shadow banking, which are off the balance sheet and considered as a substitute for deposits. Commercial banks in China are involved in the issuance of WMPs mainly to; evade the regulatory restrictions, move non-performing loans away from the balance sheet, chase the profits and take advantage of yield spread (the difference between WMPs yield and deposit rate).Design/methodology/approachIn this study, the authors investigate what bank related characteristics and needs; influenced and prompted the issuance of WMPs. By using a quarterly panel data from 2010 to 2019, this study performed the fixed effects approach favored by the Hausman specification test, and a feasible generalized least square (FGLS) estimation method is employed to deal with any issues of heteroscedasticity and auto-correlation.FindingsThis study found that there is a positive and significant association between the non-performing loan ratio and the issuance of WMPs. Moreover, profitability and spread were found to play an essential role in the issuance of WMPs. The findings of this study suggest that WMPs are issued for multi-purpose, and off the balance sheet status of these products makes them very lucrative for regulated Chinese commercial banks.Research limitations/implicationsNon-guaranteed WMPs are considered as an item of shadow banking in China, as banks do not consolidate this type of WMPs into their balance sheet; due to that reason, there is no individual bank data available for the amount of WMPs. The authors use the number of WMPs issued by banks as a proxy for the bank's exposure to the WMPs business.Practical implicationsFrom a regulatory perspective, this study helps regulators to understand the risk associated with the issuance of WMPs; by providing empirical evidence that Chinese banks issue WMPs to hide the actual risk of non-performing loans, and this practice could mislead the regulators to evaluate the bank credit risk and loan quality. This study also identifies that Chinese banks issue WMPs for multi-purpose; this can help potential investors to understand the dynamics of WMPs issuance.Originality/valueThis research is innovative in its orientation because it is designed to investigate the less explored wealth management products (WMPs) issued by Chinese banks. This study's content includes not only innovation but also contributes to the existing literature on the shadow banking sector in terms of regulatory arbitrage. Moreover, the inclusion of FGLS estimation models, ten years of quarterly data, and the top 30 Chinese banks (covers 70% of the total Chinese commercial banking system's assets) make this research more comprehensive and significant.

Does the second wave of COVID-19 undermine corporate immunity? International evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Huy Viet Hoang ◽  
Cuong Nguyen ◽  
Khanh Hoang
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Fixed Effects ◽  
Management Strategies ◽  
The United States ◽  
Least Square ◽  
Content Type ◽  
The Impact ◽  
Second Wave ◽  
Practical Implications

PurposeThis study compares the impact of the COVID-19 pandemic on stock returns in the first two waves of infection across selected markets, given built-in corporate immunity before the global outbreak.Design/methodology/approachThe data are collected from listed firms in five markets that have experienced the second wave of COVID-19 contagion, namely the United States (US), Australia, China, Hong Kong and South Korea. The period of investigation in this study ranges from January 24 to August 28, 2020 to cover the first two COVID-19 waves in selected markets. The study estimates the research model by employing the ordinary least square method with fixed effects to control for the heterogeneity that may confound the empirical outcomes.FindingsThe analysis reveals that firms with larger size and more cash reserves before the COVID-19 outbreak have better stock performance under the first wave; however, these advantages impede stock resilience during the second wave. Corporate governance practices significantly influence stock returns only in the first wave as their effects fade when the second wave emerges. The results also suggest that in economies with greater power distance, although stock price depreciation was milder in the first wave, it is more intense when new cases again surge after the first wave was contained.Practical implicationsThis paper provides practical implications for corporate managers, policymakers and governments concerning crisis management strategies for COVID-19 and future pandemics.Originality/valueThis study is the first to evaluate built-in corporate immunity before the COVID-19 shock under successive contagious waves. Besides, this study accentuates the importance of cultural understanding in weathering the ongoing pandemic across different markets.

The effects of corporate disclosure on firm value and firm performance: evidence from Turkey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hüseyin Temiz
Keyword(s):  
Firm Performance ◽  
Firm Value ◽  
Fixed Effects ◽  
Ordinary Least Squares ◽  
Least Square ◽  
Corporate Disclosure ◽  
Content Type ◽  
Regulatory Bodies ◽  
Transparency And Disclosure ◽  
The Cost

Purpose The purpose of this study is to investigate the effects of firms’ disclosure practices on firm value and firm performance. Design/methodology/approach Firms’ disclosure scores were calculated based on unique hand-collected data by using the S&P transparency and disclosure index (S&P TD index). Ordinary least squares with year/firm fixed effects and two-stage least square methods were used to test the hypothesis. Findings It is observed that firms’ disclosure scores have positive and statistically significant effects on firm value. However, firms’ disclosure scores do not have significant effects on firm performance. This result is mostly observed in sub-categories of the index. Practical implications Results show that disclosed information has an impact on firm value. Therefore, standardization and increasing the reliability of this information are necessary for both information users and firms. It is important to standardize the information published by the firms and to increase their reliability by implementing new regulations by regulatory bodies in Turkey. Social implications Firms bear the costs due to their disclosure practices. However, the benefits derived from this situation may be higher than the cost incurred. Hence, it is suggested that firms that are traded in Turkey consider this in the determination of their disclosure policy. Originality/value This is the first study that investigates the effects of firms’ disclosure scores on both firm value and firm performance by using the S&P TD index in the Turkish context.

The effect of audit fees, audit quality and board ownership on tax aggressiveness: evidence from Thailand

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marziana Madah Marzuki ◽  
Muhammad Syukur Muhammad Al-Amin
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Good Governance ◽  
Tax Avoidance ◽  
Audit Fees ◽  
Least Square ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Nonaudit Services ◽  
Board Ownership

PurposeThe purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.Design/methodology/approachThe sample of this study is based on 215 firm-year observations of SET-100 listed companies in Thailand during the 2010–2018 periods. This study employs a panel least square regression with period fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from the EMIS database.FindingsThis study provides evidence that audit fees reduce tax aggressiveness and board ownership enhance tax aggressiveness among the firms. Nonaudit services provided by auditors impair auditors' independence and lead to higher tax aggressiveness. The result supports the agency theory, which explains that managers and blockholders may enjoy private benefits of control at the expense of other shareholders in the absence of market control. Thus, firms need good governance practices such as incentives paid for the effort of auditors and nonaudit services monitoring to curb such exploitation.Research limitations/implicationsThe results provide implications to the firms and regulators that incentives to the monitoring parties such as auditors can reduce tax aggressiveness among the firms. Nevertheless, higher ownership given to boards as incentives may lead to concentrated ownership and thus lead to the type 2 agency problem, which is between majority and minority shareholders. The result also provides caution to the regulators to monitor the nonaudit services provided by the auditors as it might impair their independence and compromise the tax paid to IRB.Originality/valueThis study is pioneer research discussing tax avoidance in Thailand. The Thai Government has been noticing that tax avoidance is being performed in the country, but academic discussion on this topic had never been elaborated.

Corporate social responsibility and corporate payout policy: the impact of product market competition

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shahbaz Sheikh
Keyword(s):  
Corporate Social Responsibility ◽  
Firm Performance ◽  
Social Responsibility ◽  
Social Performance ◽  
Market Competition ◽  
Global Reporting Initiative ◽  
Product Markets ◽  
Content Type ◽  
Corporate Social ◽  
The Impact

PurposeThe purpose of this paper is to empirically investigate if and how firm performance in corporate social responsibility (CSR) is related to corporate payouts and how competition in product markets influences this relation.Design/methodology/approachLogit and Tobit regressions are used to estimate the relation between firm performance in CSR and corporate payouts.FindingsThe empirical results show that firm performance in CSR is positively related to the propensity and level of dividends, repurchases and total payouts (dividends plus repurchases). However, the positive relation between CSR performance and corporate payouts is significant only for firms that operate in low competition markets. In high competition markets, CSR performance does not seem to have any significant relation with corporate payouts.Research limitations/implicationsThis study uses MSCI social ratings data to measure net scores on CSR. There is no systematic conceptual reason for measuring social performance using MSCI social ratings. Future research should use other measures of social performance (e.g. Dow Jones Sustainability Index, Accountability Ratings and Global Reporting Initiative to estimate the relation between CSR and corporate payouts).Practical implicationsCSR firms are more likely to choose higher payouts when they operate in low competition markets.Originality/valueThis study contributes to the stream of research that evaluates the payout choices of CSR firms and competition in product markets. To the author's knowledge, this is the first study that documents the impact of market competition on the relation between firm performance in CSR and corporate payouts.

Lending relationships, credit ratings and bank loan spreads: evidence from Indonesian listed companies

2020 ◽  
Vol 16 (4) ◽  
pp. 455-479
Author(s):  
Yane Chandera ◽  
Lukas Setia-Atmaja
Keyword(s):  
Fixed Effects ◽  
Credit Ratings ◽  
Listed Companies ◽  
Bank Loan ◽  
Least Squares Regression ◽  
Firm Level ◽  
Content Type ◽  
Lending Relationships ◽  
Loan Spreads ◽  
The Impact

PurposeThis study examines the impact of firm-bank relationships on bank loan spreads and the mitigating role of firm credit ratings on that impact.Design/methodology/approachThe study sample consists of Indonesian publicly listed companies for the period 2006 to 2016; bank-loan data was extracted from the Loan Pricing Corporation Dealscan database. For the degree of firm-bank relationships, the data on each loan is manually computed, using five different methods taken from Bharath et al. (2011) and Fields et al. (2012). All of the regression analyses are controlled for the year fixed effects, heteroscedasticity, and firm-level clustering. To address the endogeneity issues, this study uses several methods, including partitioning the sample, running nearest-neighbour and propensity score matching tests, and using instrumental variables in two-staged least-squares regression models.FindingsIn line with relationship theory and in opposition to the hold-up argument, this study finds that lending relationships reduce bank loan spreads and that the impact is more noticeable among non-rated Indonesian firms. Specifically, each additional unit in the total number of years of a firm-bank relationship and the number of previous loan contracts with the same bank are associated with 7.34 and 9.15 basis-point decreases, respectively, in these loan spreads.Practical implicationsCorporations and banks should maintain close, long-term relationships to reduce the screening and monitoring costs of borrowing. Regulators should create public policies that encourage banks to put more emphasis on relationships in their lending practices, especially in relation to crisis-prone companies.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the impact of lending relationships on bank loan spreads in Indonesia. The study offers insights on banking relationships in emerging markets with concentrated banking industries, underdeveloped capital markets and prominent business-group affiliations.

The determinants of profitability in Sharia-compliant corporations: evidence from Jordan

2019 ◽  
Vol 10 (4) ◽  
pp. 546-564 ◽  
Author(s):  
Nizar Mohammad Alsharari ◽  
Turki Raji Alhmoud
Keyword(s):  
Panel Data ◽  
Voluntary Disclosure ◽  
Fixed Effects ◽  
Management Style ◽  
Least Square ◽  
Return On Assets ◽  
Content Type ◽  
Return On Equity ◽  
Independent Variables ◽  
Internal And External Factors

Purpose The purpose of this paper is to examine the determinants of profitability of 28 Sharia-compliant corporations in Jordan over the three-year period of 2013-2015. Design/methodology/approach The two-stage least square (2SLS) regression analysis with fixed effects was conducted using two measures of profitability, namely: return on assets and return on equity. The empirical data were collected from 28 Sharia-compliant corporations in Jordan over the study period. A variety of internal and external factors was used to determine profitability. Findings In general, this analysis of the determinants of profitability for Sharia-compliant corporations confirmed previous findings. Regression findings revealed that previous year profitability, debt ratio, organizational structure, the size of the audit firm and voluntary disclosure to be important determinants of profitability of Sharia-compliant corporations in Jordan from 2013 to 2015. The independent variables of firm size, ownership ratio greater than 5%, liquidity ratio, percentage of non-Jordanian ownership or the age of the firm were not found to significantly influence the profitability of the corporations studied. Research limitations/implications The authors determined that the independent variables selected, with few exceptions, behaved according to expectations. Moreover, the current literature on the influence of management on performance, and thus, profitability, does not consider the philosophy under which business is conducted (a limitation with respect to the type of business conducted). For example, Sharia-compliant and non-Sharia-compliant firms operate under different sets of principles and rules. This variance in business philosophies may have an important bearing on management style, an aspect that has been neglected in the organizational management literature. The panel data from a three-year period was insufficient to validate the consistency of the results; future researchers may increase the length of the study periods to confirm results and increase the robustness of the data collection method. Practical implications The findings from the study have implications that may be functional for businesses, investors and policymakers in their focus on the Sharia-compliant business sector in Jordan. The factors influencing profitability may inform the setting of regulatory policy designed to stabilize and sustain the performance of Sharia-compliant corporations more broadly. Originality/value This study contributes to the growing body of literature on Islamic finance, and can be considered one of a very few that have examined the internal and external determinants of the profitability of Sharia-compliant corporations in a developing country such as Jordan, using panel data.

Firm-level agreements, employment strategies and temporary workers

2020 ◽  
Vol 42 (1) ◽  
pp. 194-212
Author(s):  
Saverio Minardi
Keyword(s):  
Fixed Effects ◽  
Selection Process ◽  
Temporary Employment ◽  
Least Square ◽  
Temporary Workers ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
Collective Agreements ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of two-tier firm-level collective agreements on firms’ propensity to use temporary employment, accounting for the process of self-selection of firms into different bargaining levels in the Italian context. It further examines which firm-level characteristics drive this process of selection. Design/methodology/approach The empirical analysis uses a panel data set of Italian firms for the years 2005, 2007, 2010 and 2015. Estimations are produced and compared through ordinary least square regression, random-effects and fixed-effects models. Findings Results show that enterprises adopting two-tier firm-level agreements (TTFA) are associated with lower levels of temporary workers. However, a longitudinal analysis suggests that introducing a TTFA does not impact firms’ propensity to employ temporary workers. This novel finding highlights the presence of a selection process based on firm-level time-constant characteristics. The paper argues that these characteristics refer to management orientation toward high-road rather than low-road employment strategies. Further evidence is brought in support of this claim, showing that firms’ propensity toward the provision of training for their labor force partially explain the process of selection. Originality/value The study is the first to analyze the impact of secondary-level collective agreements on firms’ reliance on temporary employment, offering new evidence on the causes of the expansion of temporary employment. It further highlights the relevance of employers’ strategies in shaping the impact of the bargaining structure.

Competition and efficiency in the non-life insurance market in South Africa

2016 ◽  
Vol 43 (6) ◽  
pp. 882-909 ◽  
Author(s):  
Abdul Latif Alhassan ◽  
Nicholas Biekpe
Keyword(s):  
Life Insurance ◽  
Fixed Effects ◽  
Stochastic Frontier Analysis ◽  
Market Competition ◽  
Empirical Relationship ◽  
Insurance Market ◽  
Profit Efficiency ◽  
Content Type ◽  
Frontier Analysis ◽  
Regulatory Policies

Purpose The purpose of this paper is to examine the empirical effect of competition on cost and profit efficiency in the South African non-life insurance market in a three-stage analysis. Design/methodology/approach Using annual firm level data on 80 non-life insurance companies from 2007 to 2012, the authors first employ the stochastic frontier analysis (SFA) to estimate cost and profit efficiency scores. In the second stage, the authors measure insurance market competition using the Panzar-Rosse (P-R) H-statistics. In the final stage, the authors estimate a fixed-effects panel regression model which controls for heteroskedasticity to examine the effect of competition on the estimated efficiency scores. Firm size, diversification, age, risk, reinsurance and leverage are employed as control variables. Findings From the SFA, the authors find average cost and profit efficiency of 80.08 and 45.71 per cent, respectively. This suggests that non-life insurers have high levels of efficiency in cost and low efficiency in profit. The annual estimates of the P-R H-statistics also suggest that firms in the market earn revenues under conditions of monopolistic competition. The authors find a positive effect of competition on cost and profit efficiency to validate the “quiet-life” hypothesis which posits that competition improves efficiency. Practical implications Regulatory policies should be directed towards enhancing competition to improve on the low profit earning potential of firms in the non-life market. Originality/value To the best of the authors’ knowledge, this study presents the first application of a non-structural measure of competition to examine the empirical relationship between competition and efficiency in insurance markets.

Sign in / Sign up

Export Citation Format

Share Document