Bank Loan Spread and Private Information: Pending Approval Patents

60 Pages Posted: 1 Aug 2014 Last revised: 6 Nov 2014

See all articles by Marlene Plumlee

Marlene Plumlee

University of Utah - School of Accounting

Yuan Xie

Fordham University

Meng Yan

Fordham University - Gabelli School of Business

Jeff Jiewei Yu

University of Arizona

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2014

Abstract

This study examines a specific source of lenders’ ex ante information advantage, private information about borrowers’ forthcoming patents. We examine this setting to provide evidence of the impact of such private information on borrowers’ cost of debt. We find evidence consistent with lenders incorporating private information by charging borrowers with forthcoming patents a lower spread than borrowers that lack that private information. We document a negative association between loan spread and the citation count on forthcoming patents, consistent with borrowers providing lenders with detailed information regarding future expected cash flows from forthcoming patents and lenders responding through a reduction in interest costs for those borrowers. We also show that the reduction in loan spreads is related to the expected value of the forthcoming patent and is greater for borrowers with higher initial information uncertainty and default risk, and when the lead lender has greater loan concentration in the borrower’s industry. Our results suggest that forthcoming patents are a significant source of private information useful to borrowers and employed by lenders.

Keywords: Private Information, Information Uncertainty, Information Advantage, Patent Pending, NOA, Cost of Debt

JEL Classification: M41, G21

Suggested Citation

Plumlee, Marlene A. and Xie, Yuan and Yan, Meng and Yu, Jeff Jiewei, Bank Loan Spread and Private Information: Pending Approval Patents (July 30, 2014). Review of Accounting Studies, Forthcoming; Fordham University Schools of Business Research Paper No. 2474267. Available at SSRN: https://ssrn.com/abstract=2474267

Marlene A. Plumlee (Contact Author)

University of Utah - School of Accounting ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Yuan Xie

Fordham University ( email )

441E Fordham Road
Bronx, NY 10458
United States

HOME PAGE: http://www.fordham.edu/info/22941/full-time_faculty/4970/yuan_xie

Meng Yan

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

Jeff Jiewei Yu

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States
520-621-1273 (Phone)

HOME PAGE: http://https://accounting.eller.arizona.edu/people/jeff-jiewei-yu

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