The Influence of Loan Officers on Loan Contract Design and Performance

60 Pages Posted: 9 Aug 2019 Last revised: 6 Dec 2020

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Janet Gao

Indiana University - Kelley School of Business

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Joseph Pacelli

Harvard Business School

Date Written: December 4, 2020

Abstract

We investigate the extent to which loan officers generate independent, individual effects on the design and performance of syndicated loans. We construct a large database containing the identities of loan officers involved in structuring syndicated loan deals, allowing us to systematically disentangle borrower, bank, and loan officer fixed effects. We find that loan officers have significant influence on interest spreads, loan covenant design, and loan performance. Inclusion of borrower fixed effects increases our power to rule out the alternative that loan officer fixed effects reflect the matching of officers to borrowers based on time-invariant borrower characteristics. We document heterogeneity in loan officers’ influence across loan contract terms, with loan officers exerting stronger influence over covenant package design than over interest spreads, but marginal influence on loan maturity. Lead officers have greater influence than participant officers over covenant package design and loan performance, but less robust differential influence on interest spreads.

Keywords: Loan officers, banking, covenants, interest spreads, syndicated loans

JEL Classification: G30, G21, D23, J24

Suggested Citation

Bushman, Robert M. and Gao, Janet and Martin, Xiumin and Pacelli, Joseph, The Influence of Loan Officers on Loan Contract Design and Performance (December 4, 2020). Journal of Accounting & Economics (JAE), Vol. 71, No. 1, 2021, Available at SSRN: https://ssrn.com/abstract=3433063 or http://dx.doi.org/10.2139/ssrn.3433063

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/

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Xiumin Martin

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Joseph Pacelli (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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