The Informational Role of the Media in Private Lending

54 Pages Posted: 5 Jan 2014 Last revised: 10 Jun 2016

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Regina Wittenberg Moerman

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2016

Abstract

We investigate whether a borrower’s media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, non-relationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media-initiated, borrower-specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, non-relationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans and (4) loan spreads decrease.

Keywords: media, relationship lending, syndicate structure, lead arranger, sentiment

JEL Classification: G12, G21, M40, M41

Suggested Citation

Bushman, Robert M. and Williams, Christopher D. and Wittenberg Moerman, Regina, The Informational Role of the Media in Private Lending (June 9, 2016). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2374724 or http://dx.doi.org/10.2139/ssrn.2374724

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

Regina Wittenberg Moerman (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
717
Abstract Views
3,622
rank
34,591
PlumX Metrics