Major Government Customers and Loan Contract Terms

Daniel A. Cohen, Bin Li, Ningzhong Li and Yun Lou
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Daniel A. Cohen: University of Texas at Dallas - Naveen Jindal School of Management
Bin Li: University of Texas at Dallas - Naveen Jindal School of Management
Ningzhong Li: University of Texas at Dallas
Yun Lou: Singapore Management University

No 1179, HEC Research Papers Series from HEC Paris

Abstract: This study examines how a firm’s business relationship with the U.S. government, in particular, sales to the government, impacts its loan contract terms and how the effect is different from that of major corporate customers. We find that firms with major government customers have a lower number of covenants and are less likely to have performance pricing provisions in their loan contracts than other firms, whereas major corporate customers do not have such impacts. We do not find evidence that major government customers affect the supplier firm’s loan spread, security, or maturity. We conjecture that lenders benefit from the strict monitoring activities of the government customer and reduce the use of covenants and performance pricing in loan contracts when the borrowing firm has a government customer.

Keywords: Government Customers; Loan Contract Terms (search for similar items in EconPapers)
JEL-codes: G32 G38 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-11-13
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-mkt and nep-sea
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1179

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