Financial Statement Comparability and Debt Contracting: Evidence from the Syndicated Loan Market

Posted: 31 Aug 2012 Last revised: 7 Feb 2018

See all articles by Xiaohua Fang

Xiaohua Fang

Georgia State University - School of Accountancy

Yutao Li

University of Lethbridge

Baohua Xin

University of Toronto - Rotman School of Management

Wenjun Zhang

Dalhousie University

Date Written: July 16, 2016

Abstract

In this study, we examine whether and how borrowing firms’ financial statement comparability affects the contracting features of syndicated loans. Using a sample of loans issued by U.S. public firms in the syndicated loan market over the period 1992–2008, we find strong and robust evidence that financial statement comparability is negatively associated with loan spread and the likelihood of pledging collateral, and positively associated with loan maturity and the likelihood of including performance pricing provisions in loan contracts. We also find that borrowing firms with greater financial statement comparability are able to complete the loan syndication process more swiftly, form loan syndicates enabling the lead lenders to retain smaller percentages of loan shares, and attract a greater number of lenders and particularly a greater number of uninformed participating lenders. Altogether, these findings are consistent with the view that financial statement comparability plays an important role in alleviating information asymmetry in syndicated loan market.

Keywords: debt contracting, loan syndication, financial statement comparability

JEL Classification: G12, G14, M41

Suggested Citation

Fang, Xiaohua and Li, Yutao and Xin, Baohua and Zhang, Wenjun, Financial Statement Comparability and Debt Contracting: Evidence from the Syndicated Loan Market (July 16, 2016). Accounting Horizons, Vol. 30, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=2138202 or http://dx.doi.org/10.2139/ssrn.2138202

Xiaohua Fang (Contact Author)

Georgia State University - School of Accountancy ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States

Yutao Li

University of Lethbridge ( email )

Lethbridge, Alberta T1K5E8
Canada

Baohua Xin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Wenjun Zhang

Dalhousie University ( email )

Halifax
Canada

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