Inside Director Reputation and Bank Loan Contracting

Zhijun Lin; Byron Song; Zhimin Tian

Inside Director Reputation and Bank Loan Contracting

Zhijun Lin, Byron Song, Zhimin Tian

Department of Accountancy, Economics and Finance

Research output: Contribution to conference › Conference paper › peer-review

Abstract

This paper investigates whether non-CEO inside director reputation matters in bank loan contracting. Reputable inside directors (RIDs) can improve borrowers’ financial reporting quality and reduce agency risk in loan contracting. Based on regression analysis of 5,104 loan facilities during 1999-2007, we find that borrowers with reputable inside directors enjoy lower loan interest rate and a smaller number of restrictive covenants, and are less likely to have the loans secured by collateral, compared with borrowers without RIDs. The results still hold after we control for the reputation of CEOs and address the endogeneity of RIDs and the joint determination of various loan contracting terms. These findings shed light on the impact of director-level reputation in the context of bank loan market.

Original language	English
Publication status	Published - Aug 2014
Event	2014 American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting - Atlanta, United States Duration: 2 Aug 2014 → 6 Aug 2014 http://www2.aaahq.org/AM2014/index.cfm http://www2.aaahq.org/AM2014/program.cfm

Conference

Conference	2014 American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting
Country/Territory	United States
City	Atlanta
Period	2/08/14 → 6/08/14
Internet address	http://www2.aaahq.org/AM2014/index.cfm http://www2.aaahq.org/AM2014/program.cfm

Cite this

@conference{41d05bdc3abc46329804823b62be986b,

title = "Inside Director Reputation and Bank Loan Contracting",

abstract = "This paper investigates whether non-CEO inside director reputation matters in bank loan contracting. Reputable inside directors (RIDs) can improve borrowers{\textquoteright} financial reporting quality and reduce agency risk in loan contracting. Based on regression analysis of 5,104 loan facilities during 1999-2007, we find that borrowers with reputable inside directors enjoy lower loan interest rate and a smaller number of restrictive covenants, and are less likely to have the loans secured by collateral, compared with borrowers without RIDs. The results still hold after we control for the reputation of CEOs and address the endogeneity of RIDs and the joint determination of various loan contracting terms. These findings shed light on the impact of director-level reputation in the context of bank loan market.",

author = "Zhijun Lin and Byron Song and Zhimin Tian",

year = "2014",

month = aug,

language = "English",

note = "2014 American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting ; Conference date: 02-08-2014 Through 06-08-2014",

url = "http://www2.aaahq.org/AM2014/index.cfm, http://www2.aaahq.org/AM2014/program.cfm",

}

TY - CONF

T1 - Inside Director Reputation and Bank Loan Contracting

AU - Lin, Zhijun

AU - Song, Byron

AU - Tian, Zhimin

PY - 2014/8

Y1 - 2014/8

N2 - This paper investigates whether non-CEO inside director reputation matters in bank loan contracting. Reputable inside directors (RIDs) can improve borrowers’ financial reporting quality and reduce agency risk in loan contracting. Based on regression analysis of 5,104 loan facilities during 1999-2007, we find that borrowers with reputable inside directors enjoy lower loan interest rate and a smaller number of restrictive covenants, and are less likely to have the loans secured by collateral, compared with borrowers without RIDs. The results still hold after we control for the reputation of CEOs and address the endogeneity of RIDs and the joint determination of various loan contracting terms. These findings shed light on the impact of director-level reputation in the context of bank loan market.

AB - This paper investigates whether non-CEO inside director reputation matters in bank loan contracting. Reputable inside directors (RIDs) can improve borrowers’ financial reporting quality and reduce agency risk in loan contracting. Based on regression analysis of 5,104 loan facilities during 1999-2007, we find that borrowers with reputable inside directors enjoy lower loan interest rate and a smaller number of restrictive covenants, and are less likely to have the loans secured by collateral, compared with borrowers without RIDs. The results still hold after we control for the reputation of CEOs and address the endogeneity of RIDs and the joint determination of various loan contracting terms. These findings shed light on the impact of director-level reputation in the context of bank loan market.

M3 - Conference paper

T2 - 2014 American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting

Y2 - 2 August 2014 through 6 August 2014

ER -

Inside Director Reputation and Bank Loan Contracting

Abstract

Conference

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