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 behaviour is related to its subsequent bank loan contracting. A firm’s investment behaviour has implications for its future cash flows and hence 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 neither borrower reputation nor corporate monitoring strength fully explains our results, indicating that a firm’s investment behaviour captures a unique dimension of credit risk to lenders.
Original languageEnglish
Publication statusPublished - May 2015
Event2015 Canadian Academic Accounting Association (CAAA) Annual Conference - Toronto, Canada
Duration: 28 May 201531 May 2015


Conference2015 Canadian Academic Accounting Association (CAAA) Annual Conference
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