Management Earnings Forecasts and Bank Loan Contracting

27 Pages Posted: 27 May 2020

See all articles by Tien‐Shih Hsieh

Tien‐Shih Hsieh

affiliation not provided to SSRN

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Ray R. Wang

Hong Kong Baptist University

Xinlu Wang

School of Management, Jinan University

Date Written: May/June 2019

Abstract

We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine‐month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.

Keywords: bank loan contracting, good news, management earnings forecast, management forecast errors, voluntary disclosure

Suggested Citation

Hsieh, Tien‐Shih and Song, Byron Y. and Wang, Ray R. and Wang, Xinlu, Management Earnings Forecasts and Bank Loan Contracting (May/June 2019). Journal of Business Finance & Accounting, Vol. 46, Issue 5-6, pp. 712-738, 2019, Available at SSRN: https://ssrn.com/abstract=3604471 or http://dx.doi.org/10.1111/jbfa.12371

Tien‐Shih Hsieh (Contact Author)

affiliation not provided to SSRN

No Address Available

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

Ray R. Wang

Hong Kong Baptist University ( email )

Department of Accountancy and Law
34 Renfrew Road, Kowloon Tong
Hong Kong

Xinlu Wang

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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