Major Government Customers and Loan Contract Terms

Daniel Cohen, Bin Li (), Ningzhong Li and Yun Lou ()
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Daniel Cohen: PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique
Bin Li: LMVI - Key Laboratory of Molecular Virology & Immunology - IPS-CAS - Institut Pasteur de Shanghai, Académie des Sciences de Chine - Chinese Academy of Sciences - Pasteur Network (Réseau International des Instituts Pasteur)
Yun Lou: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2016-11-16
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