Corporate Misreporting and Bank Loan Contracting

57 Pages Posted: 21 Dec 2006

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Si Li

Wilfrid Laurier University - School of Business & Economics

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

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Abstract

This paper is the first to study the effect of financial restatement on bank loan contracting. Compared with loans initiated before restatement, loans initiated after restatement have significantly higher spreads, shorter maturities, higher likelihood of being secured, and more covenant restrictions. The increase in loan spread is significantly larger for fraudulent restating firms than other restating firms. We also find that after restatement, the number of lenders per loan declines and firms pay higher upfront and annual fees. These results are consistent with the view that banks use tighter loan contract terms to overcome risk and information problems arising from financial restatements.

Keywords: Corporate misreporting, financial restatement, corporate fraud, bank loans, financial contracting, cost of debt

JEL Classification: G21, G32, K22, K42

Suggested Citation

Graham, John Robert and Li, Si and Qiu, Jiaping, Corporate Misreporting and Bank Loan Contracting. Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=953013

John Robert Graham (Contact Author)

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Si Li

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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