Abstract
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 language | English |
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| Publication status | Published - May 2015 |
| Event | 2015 Canadian Academic Accounting Association (CAAA) Annual Conference - Toronto, Canada Duration: 28 May 2015 → 31 May 2015 http://69.90.139.216/ConferencesandCalls/CAAA/CAAAConf2015/index.html#.ZFm0QnbP2Uk |
Conference
| Conference | 2015 Canadian Academic Accounting Association (CAAA) Annual Conference |
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| Country/Territory | Canada |
| City | Toronto |
| Period | 28/05/15 → 31/05/15 |
| Internet address |