Management earnings forecasts and bank loan contracting

Tien Shih Hsieh; Byron Y. Song; Ray R. Wang; Xinlu Wang

doi:10.1111/jbfa.12371

Management earnings forecasts and bank loan contracting

Tien Shih Hsieh, Byron Y. Song, Ray R. Wang^*, Xinlu Wang

^*Corresponding author for this work

Department of Accountancy, Economics and Finance

Research output: Contribution to journal › Journal article › peer-review

15 Citations (Scopus)

Abstract

We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine-month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.

Original language	English
Pages (from-to)	712-738
Number of pages	27
Journal	Journal of Business Finance and Accounting
Volume	46
Issue number	5-6
DOIs	https://doi.org/10.1111/jbfa.12371
Publication status	Published - 1 May 2019

Scopus Subject Areas

Accounting
Business, Management and Accounting (miscellaneous)
Finance

User-Defined Keywords

bank loan contracting
good news
management earnings forecast
management forecast errors
voluntary disclosure

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10.1111/jbfa.12371

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abstract = "We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine-month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.",

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author = "Hsieh, {Tien Shih} and Song, {Byron Y.} and Wang, {Ray R.} and Xinlu Wang",

note = "Funding Information: The authors gratefully acknowledge the financial support from Hong Kong Baptist University. Funding Information: We sincerely thank Brian Rountree (Editor) and an anonymous referee for helpful and constructive comments and suggestions. We also gratefully acknowledge the financial support from Hong Kong Baptist University. (Paper received March 2016, revised version accepted January 2019)",

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PY - 2019/5/1

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N2 - We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine-month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.

AB - We find that firms tend to issue management earnings forecasts and convey good news before bank loan initiation. Issuing firms enjoy more favorable contracting terms and attract more lenders. Management forecasts issuance within a nine-month period prior to the loan activating quarter can lower the subsequent loan spread by 14.06 basis points. Moreover, firms with larger management forecast errors are charged harsher contracting terms and attract fewer lenders. Our study suggests that firms strategically issue management earnings forecasts before entering into debt contracts and lenders incorporate the information contained in management earnings forecasts into bank loan contracting.

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Management earnings forecasts and bank loan contracting

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