SYNOPSIS In this study, we examine whether and how borrowing firms' financial statement comparability affects the contracting features of syndicated loans. Using a sample of loans issued by U.S. public firms in the syndicated loan market over the period 1992–2008, we find strong and robust evidence that financial statement comparability is negatively associated with loan spread and the likelihood of pledging collateral, and positively associated with loan maturity and the likelihood of including performance pricing provisions in loan contracts. We also find that borrowing firms with greater financial statement comparability are able to complete the loan syndication process more swiftly, form loan syndicates enabling the lead lenders to retain smaller percentages of loan shares, and attract a greater number of lenders and, particularly, a greater number of uninformed participating lenders. Altogether, these findings are consistent with the view that financial statement comparability plays an important role in alleviating information asymmetry in the syndicated loan market. JEL Classifications: G12; G14; M41
This study examines the relation between performance covenants in private debt contracting and conservative accounting under adverse selection. We find that under severe adverse selection (i.e., high information asymmetry), accounting conservatism and performance covenants act as complements to signal that the borrower is unlikely to appropriate wealth from the lender. No such relation obtains in a low information asymmetry regime. We further show that in the high information asymmetry regime, borrowers with high levels of conservatism and tight performance covenants generally enjoy lower interest rate spreads than borrowers with low levels of conservatism and loose performance covenants. Consistent with our signaling theory, in the high information asymmetry regime, borrowers with high levels of conservatism and tight performance covenants are less likely to make abnormal payouts to shareholders. Our empirical results are robust to alternative measures of conservatism and covenant restrictiveness. R ESUM ELes auteurs etudient la relation entre les clauses restrictives li ees a la performance dans les contrats d'emprunt sur le march e priv e et la prudence comptable en situation d'antis election. Ils constatent que lorsque l'antis election est marqu ee (c'est-a-dire lorsque l'asym etrie de l'information est importante), la prudence comptable et les clauses restrictives li ees a la performance jouent des rôles compl ementaires dans le signalement du fait * Accepted by Sudipta Basu. We are indebted to Sudipta Basu and two anonymous reviewers of this journal for their guidance and constructive comments. We also thank que l'emprunteur est peu susceptible de s'enrichir aux d epens du prêteur. Aucune relation de cette nature n'est observ ee en situation de faible asym etrie de l'information. Les auteurs montrent au surplus que lorsque l'asym etrie de l'information est importante, les emprunteurs qui affichent des niveaux elev es de prudence et sont assujettis a des clauses restrictives rigoureuses en mati ere de performance b en eficient g en eralement d' ecarts de taux d'int erêt moins grands que les emprunteurs dont les niveaux de prudence sont faibles et qui sont assujettis a des clauses restrictives peu exigeantes en mati ere de performance. Conform ement a leur th eorie de la signalisation, les auteurs constatent qu'en situation d'asym etrie de l'information importante, les emprunteurs qui affichent des niveaux elev es de prudence et sont assujettis a des clauses restrictives rigoureuses en mati ere de performance sont moins susceptibles de proc eder a des distributions anormales aux actionnaires. Les r esultats empiriques de l' etude r esistent aux diff erentes mesures de la prudence et de la rigueur des clauses restrictives.
We develop and test a model that provides a unified account of the neural processes underlying behavior in a classical economic choice task. The model describes in a stylized way brain processes engaged in evaluating information provided by the experimental stimuli, and produces a consistent account of several important features of the decision process in different environments: e.g., when the probability is specified or not (ambiguous choices). These features include the choices made, the time to decide, the error rate in choice, and the patterns of neural activation. The model predicts that the further two stimuli are from each other in utility space, the shorter the reaction time will be, fewer errors in choice will be made, and less neural activation will be required to make the choice. The model also predicts that choices with ambiguity can be made more quickly and will require reduced neural activation in the horizontal intra-parietal sulcus than for choices with risk. Also, everything else being equal a larger value of certainty option in the choice will induce larger neural activation, and less experience on the part of the subject making choices will induce larger activation.
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