Bank Loan Contract Design through Learning and Renegotiating

2005 ◽  
Author(s):  
Ronald J. Mahieu ◽  
Arjen Mulder
Keyword(s):  
Contract Design ◽  
Bank Loan ◽  
Loan Contract

Do Banks Price Independent Directors’ Attention?

2018 ◽  
Vol 53 (4) ◽  
pp. 1755-1780 ◽  
Author(s):  
Henry He Huang ◽  
Gerald J. Lobo ◽  
Chong Wang ◽  
Jian Zhou
Keyword(s):  
Lower Cost ◽  
Bank Loans ◽  
Bank Loan ◽  
Independent Directors ◽  
Bond Ratings ◽  
Multiple Directorships ◽  
Lower Likelihood ◽  
Monitoring Effort ◽  
Unequal Allocation ◽  
Loan Contract

Masulis and Mobbs (2014), (2015) find that independent directors with multiple directorships allocate their monitoring efforts unequally based on a directorship’s relative prestige. We investigate whether bank loan contract terms reflect such unequal allocation of directors’ monitoring effort. We find that bank loans of firms with a greater proportion of independent directors for whom the board is among their most prestigious have lower spreads, longer maturities, fewer covenants, lower syndicate concentration, lower likelihood of collateral requirement, lower annual loan fees, and higher bond ratings. Our evidence indicates that independent directors’ attention is associated with lower cost of borrowing.

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

2011 ◽  
Vol 86 (4) ◽  
pp. 1157-1188 ◽  
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.

The Influence of Loan Officers on Loan Contract Design and Performance

2019 ◽  
Author(s):  
Robert M. Bushman ◽  
Janet Gao ◽  
Xiumin Martin ◽  
Joseph Pacelli
Keyword(s):  
Contract Design ◽  
And Performance ◽  
Loan Officers ◽  
Loan Contract

The Influence of Loan Officers on Loan Contract Design and Performance

2020 ◽  
pp. 101384
Author(s):  
Robert Bushman ◽  
Janet Gao ◽  
Xiumin Martin ◽  
Joseph Pacelli
Keyword(s):  
Contract Design ◽  
And Performance ◽  
Loan Officers ◽  
Loan Contract

Bank Skin in the Game and Loan Contract Design: Evidence from Covenant-Lite Loans

2016 ◽  
Vol 51 (3) ◽  
pp. 839-873 ◽  
Author(s):  
Matthew T. Billett ◽  
Redouane Elkamhi ◽  
Latchezar Popov ◽  
Raunaq S. Pungaliya
Keyword(s):  
Moral Hazard ◽  
Agency Problems ◽  
Contract Design ◽  
Hockey Stick ◽  
Dual Agency ◽  
Low Threshold ◽  
Loan Contract

AbstractIn a model of dual-agency problems where borrower–lender and bank–nonbank incentives may conflict, we predict a hockey stick relation between bank skin in the game and covenant tightness. As bank participation declines, covenant tightness increases until reaching a low threshold, at which point the relation sharply reverses and covenant protection is removed with a commensurate increase in spread. We find support for the hockey stick relation with bank’s stake in covenant-lite loans averaging 8% (0% median). We also find that covenant-lite loans are more likely when borrower moral hazard is less severe and when bank relationship rents are high.

Bank Interventions and Trade Credit: Evidence from Debt Covenant Violations

2018 ◽  
Vol 54 (5) ◽  
pp. 2179-2207 ◽  
Author(s):  
Zilong Zhang
Keyword(s):  
Trade Credit ◽  
Regression Discontinuity ◽  
Contract Design ◽  
Regression Discontinuity Design ◽  
Control Rights ◽  
Loan Contracts ◽  
Debt Covenant ◽  
Substantial Decline ◽  
Covenant Violations ◽  
Loan Contract

This study examines the consequences of conflicts between creditors. Using the setting of debt covenant violations, I employ a regression discontinuity design to identify the effect of banks’ interventions on their borrowers’ trade credit. The results show that trade credit experiences a substantial decline when banks intervene in the borrowing firm following covenant violations. The decline is mitigated by the presence of dependent suppliers and exacerbated by banks’ incentives to exercise control rights. Such externalities are reflected in the loan-contract design. Borrowing firms sign less restrictive loan contracts when they rely more on trade credit or trade creditors.

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

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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