MD&A readability and bank loan contracting: evidence from China

Ying Liu, Zhe Shen, Shan Li and Jiaxing You

Asia-Pacific Journal of Accounting & Economics, 2025, vol. 32, issue 6, 1085-1122

Abstract: We investigate whether and how the textual characteristics of management discussion and analysis (MD&A) can affect bank loan contracting using a sample of 31,141 loan-firm-year observations in China. We document a strong negative relationship between a firm’s MD&A readability and its cost of borrowing, in line with the argument that banks incorporate borrowers’ information risk into pricing. Cross-sectional analyses suggest that the relation between MD&A readability and loan contract terms is less pronounced when borrowing firms are state-owned or have political connections, when firms are located in areas with more developed credit markets, and when lending banks are large shareholders.

Date: 2025
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DOI: 10.1080/16081625.2024.2382123

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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