SEC Comment Letters and Bank Lending

51 Pages Posted: 5 Feb 2016 Last revised: 3 Aug 2017

See all articles by Lauren M. Cunningham

Lauren M. Cunningham

University of Tennessee - Haslam College of Business

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management

Wei Wang

Temple University - Department of Accounting

Date Written: January 1, 2017

Abstract

Banks collect private information for the purpose of monitoring borrowers. However, we have little evidence on the sources of private information they use. This study investigates whether and how banks use private information about regulatory oversight of public disclosures through the SEC comment letter process. Using within-sample and difference-in-differences analyses, we find that banks charge higher interest rates when borrowers receive a comment letter from the SEC, and such an increase in interest rate is greatest in the period when information regarding the comment letter is not yet publicly available. Further analyses show that the effect of comment letters on loan pricing is more pronounced when the letter identifies material disclosure deficiencies, issues subject to managerial discretion, and issues related to collateral valuation. Overall, our findings contribute to the literature on banks’ private information production by establishing the SEC comment letter process as a source of information banks use to make lending decisions.

Keywords: banks, comment letters, debt contracting, filing review process, SEC

JEL Classification: G21, G32, G38, M41

Suggested Citation

Cunningham, Lauren M. and Schmardebeck, Roy and Wang, Wei, SEC Comment Letters and Bank Lending (January 1, 2017). Available at SSRN: https://ssrn.com/abstract=2727860 or http://dx.doi.org/10.2139/ssrn.2727860

Lauren M. Cunningham (Contact Author)

University of Tennessee - Haslam College of Business ( email )

Accounting and Information Management
603 Stokely Management Center
Knoxville, TN 37996
United States

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management ( email )

The Boyd Center for Business and Economic Research
Knoxville, TN 37996
United States

Wei Wang

Temple University - Department of Accounting ( email )

Alter Hall 450
1801 Liacouras Walk
Philadelphia, PA 19122
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
372
Abstract Views
1,601
rank
79,800
PlumX Metrics