Financial statement disaggregation and bank loan pricing

Chien-Lin Lu, Chih-Yung Lin, Tse-Chun Lin and Bin Miao

Journal of Empirical Finance, 2024, vol. 79, issue C

Abstract: We analyze whether the disaggregation quality (DQ) of a borrower's financial statement is associated with its bank loan pricing. We find that firms with high DQ have low spreads on their bank loans. This result is more pronounced for firms with positive financial prospects, higher risk, and no prior banking relationship with the lenders. Moreover, a high DQ is associated with a low total cost of borrowing, high credit rating, and low spreads on bond issues. Overall, our results show that disaggregated financial statements facilitate bank loan pricing by enabling lenders to make better predictions of their borrowers’ future performance.

Keywords: Disaggregation quality; Bank loan spread; Total cost of borrowing; Disclosure quality; Default risk (search for similar items in EconPapers)
JEL-codes: G21 G24 G32 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:79:y:2024:i:c:s0927539824000896

DOI: 10.1016/j.jempfin.2024.101555

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