Do Better Managers Get Better Loan Contracts?

67 Pages Posted: 14 Jun 2016

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Ning Ren

Long Island University Post; Rensselaer Polytechnic Institute

Xian Sun

Johns Hopkins University - Carey Business School

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Date Written: June 10, 2016

Abstract

This paper examines the impact of managerial ability on bank loan contracting. We find that firms with higher ability managers obtain more favorable loan contract terms, such as lower loan spreads, less stringent covenants, and longer term maturity. Furthermore, the negative relation between managerial ability and loan spread is concentrated in firms with higher information asymmetry, higher default risk, or lower agency costs of debt. Finally, we find that managerial ability is positively related to firm future performance and negatively related to firm future default risk, indicating that managerial ability affects bank loan contracting via both valuation and information effects.

Keywords: Managerial ability, Bank loan contracting, Default risk, Information opacity, Agency costs of debt

JEL Classification: G14, G21, M41

Suggested Citation

Francis, Bill B. and Ren, Ning and Sun, Xian and Wu, Qiang, Do Better Managers Get Better Loan Contracts? (June 10, 2016). Available at SSRN: https://ssrn.com/abstract=2793943 or http://dx.doi.org/10.2139/ssrn.2793943

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Ning Ren

Long Island University Post ( email )

720 Northern Boulevard
Brookville, 11548-1327
United States
5162992095 (Phone)

Rensselaer Polytechnic Institute ( email )

United States
5852819777 (Phone)

Xian Sun

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Qiang Wu (Contact Author)

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

110 8th St
Troy, NY 12180
United States
518-276-3338 (Phone)
518-276-8661 (Fax)

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