Corporate Misreporting and Bank Loan Contracting

John R. Graham, Si Li and Jiaping Qiu

No 13708, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper is the first to study the effect of financial restatement on bank loan contracting. Compared with loans initiated before restatement, loans initiated after restatement have significantly higher spreads, shorter maturities, higher likelihood of being secured, and more covenant restrictions. The increase in loan spread is significantly larger for fraudulent restating firms than other restating firms. We also find that after restatement, the number of lenders per loan declines and firms pay higher upfront and annual fees. These results are consistent with the view that banks use tighter loan contract terms to overcome risk and information problems arising from financial restatements.

JEL-codes: G21 G32 K22 K42 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-ban and nep-law
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Graham, John R. & Li, Si & Qiu, Jiaping, 2008. "Corporate misreporting and bank loan contracting," Journal of Financial Economics, Elsevier, vol. 89(1), pages 44-61, July.

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