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The Debt‐Contracting Value of Accounting Information and Loan Syndicate Structure

The Debt‐Contracting Value of Accounting Information and Loan Syndicate Structure ABSTRACT We investigate how both the ownership structure and explicit contractual structure of syndicated loan deals are shaped by the debt‐contracting value (DCV) of borrowers' accounting information. DCV captures the inherent ability of firms' accounting numbers to capture credit quality deterioration in a timely fashion. We hypothesize and document that when a borrower's accounting information possesses higher DCV, information asymmetry between the lead arranger and other syndicate participants is lower, allowing lead arrangers to hold a smaller proportion of new loan deals. Further, we document that the influence of DCV on the proportion of the loan retained is conditional on the lead arranger's reputation, the existence of a credit rating, and the lead arranger's previous relationships with the same borrower. Finally, we find that when loans include performance pricing provisions, the likelihood that the single performance measure used is an accounting ratio, rather than a credit rating, is increasing in DCV. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

The Debt‐Contracting Value of Accounting Information and Loan Syndicate Structure

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References (38)

Publisher
Wiley
Copyright
University of Chicago on behalf of the Institute of Professional Accounting, 2008
ISSN
0021-8456
eISSN
1475-679X
DOI
10.1111/j.1475-679X.2008.00273.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We investigate how both the ownership structure and explicit contractual structure of syndicated loan deals are shaped by the debt‐contracting value (DCV) of borrowers' accounting information. DCV captures the inherent ability of firms' accounting numbers to capture credit quality deterioration in a timely fashion. We hypothesize and document that when a borrower's accounting information possesses higher DCV, information asymmetry between the lead arranger and other syndicate participants is lower, allowing lead arrangers to hold a smaller proportion of new loan deals. Further, we document that the influence of DCV on the proportion of the loan retained is conditional on the lead arranger's reputation, the existence of a credit rating, and the lead arranger's previous relationships with the same borrower. Finally, we find that when loans include performance pricing provisions, the likelihood that the single performance measure used is an accounting ratio, rather than a credit rating, is increasing in DCV.

Journal

Journal of Accounting ResearchWiley

Published: May 1, 2008

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