The Impact of Earnings Predictability on Bank Loan Contracting

34 Pages Posted: 26 Oct 2012

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Jong Chool Park

University of South Florida - School of Accountancy

Qiang Wu

Hong Kong Polytechnic University-School of Accounting and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September/October 2012

Abstract

This study examines how earnings predictability affects bank loan contracting. Using a sample of 8,022 US bank loan contracts, we find that firms with more predictable earnings have more favorable loan terms, such as lower interest rates, longer maturities, and fewer covenants and collateral requirements. These results are robust to alternative specifications and earnings predictability measures. Additional analyses indicate that the relation between earnings predictability and bank loan cost varies with the availability of private information about borrowers, lenders’ monitoring incentives, the competition between banks and bond investors, and firm size. Overall, this study demonstrates that earnings predictability is an important determinant in the design of bank lending contracts affecting both price and nonprice loan terms.

Keywords: earnings predictability, bank loans, cost of debt

Suggested Citation

Hasan, Iftekhar and Park, Jong Chool and Wu, Qiang, The Impact of Earnings Predictability on Bank Loan Contracting (September/October 2012). Journal of Business Finance & Accounting, Vol. 39, Issue 7‐8, pp. 1068-1101, 2012, Available at SSRN: https://ssrn.com/abstract=2167174 or http://dx.doi.org/10.1111/j.1468-5957.2012.02292.x

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Jong Chool Park

University of South Florida - School of Accountancy ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Qiang Wu

Hong Kong Polytechnic University-School of Accounting and Finance ( email )

5182095596 (Phone)
12047-4974 (Fax)

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