Does information technology reputation affect bank loan terms?

Jeong Bon Kim, Byron Y SONG, Theophanis C. Stratopoulos

Research output: Contribution to journalReview articlepeer-review

5 Citations (Scopus)

Abstract

This study investigates whether Information Technology (IT) reputation, captured by the accumulation of consistent IT capability signals, influences bank loan contracting even though banks have access to inside information. We predict that IT reputation is associated with better loan terms because it lowers credit risk via its impact on default and information risks. Results based on 4,218 loan facility-years reveal, as predicted, that firms with a reputation for IT capability tend to have more favorable price and non-price terms for loan contracts and are less likely to have their credit rating downgraded or to report internal control weaknesses than firms with no IT reputation. The study contributes to the banking and IT business value literature by showing that banks incorporate borrowers’ nonfinancial characteristics, such as IT reputation, into loan contracting terms.

Original languageEnglish
Pages (from-to)185-211
Number of pages27
JournalAccounting Review
Volume93
Issue number3
DOIs
Publication statusPublished - May 2018

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Bank loans
  • Default risk
  • Information risk
  • IT reputation
  • Signaling theory

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