Bank loan spread and private information: pending approval patents

Marlene Plumlee (), Yuan Xie, Meng Yan and Jeff Jiewei Yu
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Marlene Plumlee: University of Utah
Yuan Xie: Fordham University
Meng Yan: Fordham University
Jeff Jiewei Yu: Texas A&M University

Review of Accounting Studies, 2015, vol. 20, issue 2, No 1, 593-638

Abstract: Abstract This study examines a specific source of lenders’ ex ante information advantage, private information about borrowers’ forthcoming patents. We examine this setting to provide evidence of the impact of such private information on borrowers’ cost of debt. We find evidence consistent with lenders incorporating private information by charging borrowers with forthcoming patents a lower spread than borrowers that lack that private information. We document a negative association between loan spread and the citation count on forthcoming patents, consistent with borrowers providing lenders with detailed information regarding future expected cash flows from forthcoming patents and lenders responding through a reduction in interest costs for those borrowers. We also show that the reduction in loan spreads is related to the expected value of the forthcoming patent and is greater for borrowers with higher initial information uncertainty and default risk, and when the lead lender has greater loan concentration in the borrower’s industry. Our results suggest that forthcoming patents are a significant source of private information useful to borrowers and employed by lenders.

Keywords: Private information; Information uncertainty; Information advantage; Patent pending; NOA; Cost of debt; SPREAD (search for similar items in EconPapers)
JEL-codes: G21 M41 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11142-014-9304-9

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