The Informational Role of the Media in Private Lending

Posted: 25 Jul 2017

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: March 1, 2017

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, nonrelationship 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, nonrelationship 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 (March 1, 2017). Journal of Accounting Research, Vol. 55, No. 1, March 2017. Available at SSRN: https://ssrn.com/abstract=3006734

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

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