Accounting quality, bank monitoring, and performance pricing loans

Yan Hu () and Connie Mao ()
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Yan Hu: University of La Verne
Connie Mao: Temple University

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 3, No 1, 569-597

Abstract: Abstract We provide new evidence on the determinants of performance pricing provisions in bank loan contracts. We find that firms that are easier to monitor, such as those with better accounting quality, lower information opacity, or a stronger relationship with the lender are more likely to have performance pricing loans. The use of performance pricing is less likely after financial restatement events. Furthermore, we find that the likelihood of using accounting-based (as opposed to credit-rating-based) pricing provisions increases as the firm’s accounting quality increases, and as the strength of the prior lending relation increases. Our results are robust to alternative measures of accounting quality, information opacity, and bank monitoring, and suggest that monitoring costs have a significant impact on the design of debt contracts.

Keywords: Performance pricing; Accounting quality; Information opacity; Bank monitoring Debt contracting (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-016-0601-1

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