Investment Decisions and Bank Loan Contracting

Wenxia Ge, Tony Kang, Gerald J. Lobo, Byron Y Song

Research output: Contribution to conferenceConference paperpeer-review


This study examines how a firm’s investment behavior relates to its subsequent bank loan contracting. A firm’s investment behavior has implications for its future cash flows and hence its credit risk. For this reason, firms that deviate from the desired level of investment may be at a disadvantage in obtaining private loans. Using a sample of U.S. firms during 1992–2011, we find that overinvesting firms obtain loans with less favorable terms, such as higher loan spreads, higher probability of loans having collateral requirements, and more covenant restrictions. Additional tests show that the effects of overinvestment on loan spreads and collateral requirements are generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership.
Original languageEnglish
Publication statusPublished - Aug 2015
Event2015 American Accounting Association Annual Meeting - Chicago, United States
Duration: 8 Aug 201512 Aug 2015


Conference2015 American Accounting Association Annual Meeting
Country/TerritoryUnited States
Internet address


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