Financial Statement Disaggregation and Syndicated Loan Terms: International Evidence

Abstract

This study examines the extent to which financial statement disaggregation (FSD) affects syndicated loan terms in an international setting. We find that greater FSD is associated with more favorable syndicated loan terms and that such effect is more pronounced in countries with strong creditor rights and high debt enforceability. In addition, we find that FSD facilitates lenders’ use of covenants to substitute legal protection in countries with weak legal institutions. Our exploratory analyses suggest that the effect of disaggregated accounting information on loan terms is primarily attributable to balance sheet disaggregation rather than income statement disaggregation. Specifically, greater disaggregated information with regards to current assets and investments is negatively associated with syndicated loan pricing whereas finer information with respect to long-term debt and common equity is more related with favorable non-price loan terms. Overall, our study enhances the understanding the role of FSD in the global debt market.