Bank Loan Spread and Private Information: Pending Approval Patents

ABSTRACT We use path analysis to investigate how corporate tax avoidance is priced in bond yields and bank loan spreads. We find that approximately one half of the total effect of tax avoidance on bond yields is explained through the negative effect of tax avoidance on future pre-tax cash flow levels and volatility and, to a lesser extent, lower information quality. The effects of these mediating variables are much less pronounced for bank loan spreads. The results of additional cross-sectional analyses indicate that, relative to bond investors, banks are able to reduce information asymmetry problems more effectively, given their access to firms' private information and greater ability to monitor borrowers. JEL Classifications: G31; G32; M10; O16.

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Internal Control Weakness and Bank Loan Contracting: Evidence from SOX Section 404 Disclosures

The Accounting Review ◽

10.2308/accr-10036 ◽

2011 ◽

Vol 86 (4) ◽

pp. 1157-1188 ◽

Cited By ~ 178

Author(s):

Jeong-Bon Kim ◽

Byron Y. Song ◽

Liandong Zhang

Keyword(s):

Internal Control ◽

Bank Loan ◽

Control Problems ◽

Section 404 ◽

Loan Contracts ◽

Loan Spread ◽

Sarbanes Oxley ◽

Loan Contracting ◽

Internal Control Weaknesses ◽

Loan Contract

ABSTRACT Using a sample of borrowing firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act, this study compares various features of loan contracts between firms with ICW and those without ICW. Our results show the following. First, the loan spread is higher for ICW firms than for non-ICW firms by about 28 basis points, after controlling for other known determinants of loan contract terms. Second, firms with more severe, company-level ICW pay significantly higher loan rates than those with less severe, account-level ICW. Third, lenders impose tighter nonprice terms on firms with ICW than on those without ICW. Fourth, fewer lenders are attracted to loan contracts involving firms with ICW. Finally, our within-firm analyses show that banks increase loan rates charged to ICW firms after their disclosure of internal control problems and that banks reduce loan rates after firms remediate previously reported ICW.

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Public disclosure and bank loan contracting: evidence from emerging markets

Asian Review of Accounting ◽

10.1108/ara-10-2013-0069 ◽

2014 ◽

Vol 22 (1) ◽

pp. 2-19 ◽

Cited By ~ 2

Author(s):

Iftekhar Hasan ◽

Liang Song

Keyword(s):

Emerging Markets ◽

Private Information ◽

Bank Loans ◽

Bank Loan ◽

Corporate Disclosure ◽

Financial Contracts ◽

Firm Level ◽

Content Type ◽

Country Level ◽

Loan Contracting

Purpose – The purpose of this paper is to fill this void in the existing literature and investigate how firms’ disclosure policies influence bank loan contracting in emerging markets after controlling for the influence of borrowers’ private information obtained by banks. Furthermore, the paper examines how firms’ disclosure and non-disclosure governance interact to affect financial contracts. Design/methodology/approach – The key variables Disclosure and Firm Governance are based on a survey by Credit Lyonnais Securities Asia (CLSA) in 2000. The paper hand-merges CLSA disclosure and governance data with the Dealscan database and Worldscope database by firm names. The paper conducts a multivariate analysis to investigate how firms’ disclosure policies influence bank loan contracting and how firms’ disclosure and non-disclosure governance interact to affect financial contracts. Findings – The authors found that firms with superior disclosure policies obtain bank loans with more favorable loan contracting terms, such as larger amounts, longer maturity, and lower spread. In addition, the effects of disclosure on bank loan contracting are more pronounced for borrowers with superior firm-level non-disclosure governance or firms located in a country with better country-level governance. Originality/value – The paper provides a more comprehensive view of the effects of corporate disclosure has on financial contracts in emerging economies.

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Corporate legal structure and bank loan spread

Journal of Corporate Finance ◽

10.1016/j.jcorpfin.2020.101656 ◽

2020 ◽

Vol 64 ◽

pp. 101656

Author(s):

Anywhere Sikochi

Keyword(s):

Bank Loan ◽

Legal Structure ◽

Loan Spread

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Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

FINANCIAL REPORTING ◽

10.3280/fr2017-001004 ◽

2017 ◽

pp. 83-99

Author(s):

Elisabetta Mafrolla ◽

Viola Nobili

Keyword(s):

Financial Reporting ◽

Banking System ◽

Regulatory System ◽

Discretionary Accruals ◽

Bank Loans ◽

Bank Loan ◽

Banking Union ◽

Private Firms ◽

European Banking Union

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers' financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms' discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

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