The Effect of Banks’ Financial Reporting on Syndicated Loan Structures

63 Pages Posted: 23 Oct 2018 Last revised: 31 Jan 2019

See all articles by Anne Beatty

Anne Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Scott Liao

University of Toronto - Rotman School of Management

Haiwen Zhang

University of Minnesota

Date Written: August 1, 2018

Abstract

We explore how an accounting measure of information asymmetry between lead and participating lenders influences syndication structures by examining whether lead lenders’ commercial and industrial (C&I) loan loss provision validity affects the fraction of loans they retain. Consistent with C&I provision validity reflecting banks’ underlying screening and monitoring effectiveness, we find that this measure reflects lead lender’s past relationship with borrowers and is associated positively with equity market reactions to loan announcements and future loan loss recovery rate and negatively with future large borrower bankruptcies. We then find lead lender’s loan share decreases specifically with C&I provision validity, but not with non-C&I provision validity. Consistent with an information effect, we further find that this association is attenuated by i) alternative information sources, including borrowers’ credit ratings and industry-level accounting debt contracting value and ii) by previous lead/participant relationships and participant/borrower relationships.

Suggested Citation

Beatty, Anne L. and Liao, Wei-Yi (Scott) and Zhang, Haiwen, The Effect of Banks’ Financial Reporting on Syndicated Loan Structures (August 1, 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3256916 or http://dx.doi.org/10.2139/ssrn.3256916

Anne L. Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Wei-Yi (Scott) Liao

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Haiwen Zhang (Contact Author)

University of Minnesota ( email )

3-122 Carlson School of Management
321-19th Avenue South
Minneapolis, MN 55455
United States

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