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http://ssrn.com/abstract=1636862
 
 

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Lenders’ Response to Peer and Customer Restatements


Rebecca Files


University of Texas at Dallas

Umit G. Gurun


University of Texas at Dallas - Naveen Jindal School of Management

July 15, 2015


Abstract:     
We investigate whether restatements announced by economically related firms influence the contract terms a borrower receives from lenders. A restatement by major customer firm increases the loan spread of a borrower by 11 basis points. The contagion effects of customer restatements are higher (45 basis points) when a borrower’s switching costs are high. Peer restatements also increase a borrower’s loan spread, with lenders reacting more strongly to restatements related to revenue recognition issues. The sensitivity of loan spread to peer restatements is also significantly greater when the restating peer firms are also in the bank’s lending portfolio, suggesting that a lender’s personal experience with restatements in an industry makes its more attuned to the potential implications of these restatements for the borrowing firm. Moreover, our results suggest that lenders utilize information from peer restatements to anticipate future restatements by the borrowing firm.

Number of Pages in PDF File: 66

Keywords: Restatements, Bank Loans, Contagion Effects, Supply Chain

JEL Classification: G10, G34, L82


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Date posted: July 9, 2010 ; Last revised: July 21, 2015

Suggested Citation

Files, Rebecca and Gurun, Umit G., Lenders’ Response to Peer and Customer Restatements (July 15, 2015). Available at SSRN: http://ssrn.com/abstract=1636862 or http://dx.doi.org/10.2139/ssrn.1636862

Contact Information

Rebecca Files
University of Texas at Dallas ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
Umit G. Gurun (Contact Author)
University of Texas at Dallas - Naveen Jindal School of Management ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
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