Does Meeting Analyst Forecasts Matter in Private Loan Market?

Posted: 14 Jan 2012

See all articles by Chen‐Lung Chin

Chen‐Lung Chin

National Chengchi University

Mei-Hui Chen

National Defense University

Date Written: January 12, 2012

Abstract

The paper examines syndicated loan market to study whether and how borrowers’ meeting or beating analysts’ expectations (MBE) have more favorable debt contractual terms. Using a sample of listed loan firms in Dealscan database during 1998-2009, we find that, as predicted, firms missing analysts’ earnings forecasts have higher loan spreads, relative to those meeting analysts’ expectations. In addition to price loan term (e.g., interest spread), we further find that missing earnings expectations has an adverse effect on non-price loan terms. Specifically, we find that when firm misses its earnings expectations, lenders are more likely to require a borrower to provide collateral to compensate for missing earnings expectations; lenders also impose more covenants on firms missing expectations, regardless of financial or general covenants. However, further analyses provide no evidence that the proportion of the loan retained by syndicate lead arrangers has an association with whether a borrower meets expectations. By providing evidence that a firm’s missing expectation influence the lenders’ reliance on non-price loan terms, this paper documents the importance of financial reporting disclosure in shaping non-price debt contractual terms.

Keywords: meeting/missing expectations, syndicated loan market, debt contractual terms

Suggested Citation

Chin, Chen Lung and Chen, Mei-Hui, Does Meeting Analyst Forecasts Matter in Private Loan Market? (January 12, 2012). Available at SSRN: https://ssrn.com/abstract=1984316

Chen Lung Chin

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Mei-Hui Chen (Contact Author)

National Defense University ( email )

No.70, Sec. 2, Zhongyang N. Rd.,
Beitou Dist.,
Taipei, 116
Taiwan

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