Do Corporate Whistleblower Laws Affect Bank Loan Contracting?

53 Pages Posted: 6 Jan 2022 Last revised: 24 Jan 2022

See all articles by Gerald J. Lobo

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Mark (Shuai) Ma

University of Pittsburgh - Katz Graduate School of Business

Kunpeng Sun

Central University of Finance and Economics

Hong Xie

University of Kentucky - Von Allmen School of Accountancy

Date Written: January 5, 2022

Abstract

We employ a generalized difference-in-differences analysis that exploits the staggered adoptions of state False Claims Acts (FCAs) to examine the implications of state whistleblower laws for bank loan contracting terms. We find that loan interest spreads are significantly reduced after firms are exposed to state general FCAs relative to firms not exposed to state general FCAs. We also find significant reductions in the number of general covenants, the number of financial covenants, and the probability of collateral requirement after firms are exposed to state general FCAs. To shed light on potential mechanisms, we provide evidence that financial reporting quality and audit quality increase after firms are exposed to state whistleblower laws. We also find that riskier firms exhibit a larger reduction in loan cost following exposure to state general FCAs. Overall, our findings suggest that whistleblower laws reduce firms’ cost of debt financing.

Keywords: Whistleblower Laws, False Claims Act (FCA), Bank Loan Contracting Terms

Suggested Citation

Lobo, Gerald J. and Ma, Mark (Shuai) and Sun, Kunpeng and Xie, Hong, Do Corporate Whistleblower Laws Affect Bank Loan Contracting? (January 5, 2022). Available at SSRN: https://ssrn.com/abstract=4001014 or http://dx.doi.org/10.2139/ssrn.4001014

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Mark (Shuai) Ma (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Kunpeng Sun

Central University of Finance and Economics

770 Middle Road
Dresden, ME 04342
United States

Hong Xie

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
(859) 257-4648 (Phone)
(859) 257-3654 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
299
Abstract Views
1,522
Rank
185,454
PlumX Metrics