Bridging the gap: the design of bank loan contracts and distance

Hollander, Stephan; Verriest, Arnt

doi:10.1016/j.jfineco.2015.09.006

Cited by 168 publications

(72 citation statements)

References 63 publications

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“…Following this line of reasoning, Christensen and Nikolaev hypothesize that capital covenants align the incentives of the contracting parties ex ante by limiting the amount of the borrower's debt, whereas performance covenants serve primarily as "trip wires" that transfer control rights ex post. The evidence in Christensen and Nikolaev [2012], Dyreng, Vashishtha, and Weber [2014], Hollander and Verriest [2015], and Honigsberg et al [2015] is broadly consistent with this hypothesis. Li, Vasvari, and Wittenberg-Moerman [2015] analyze another potentially important efficiency channel-the dynamic allocation of control rights over the life of the loan.…”

Section: Contracting?supporting

confidence: 73%

Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective

Christensen

Nikolaev

Wittenberg-Moerman

2016

J of Accounting Research

241

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This paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers. Its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research. We argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved. By discussing its rich theoretical implications, we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency. JEL codes: G32; G34; M40; M41

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Section: Contracting?supporting

confidence: 73%

Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective

Christensen

Nikolaev

Wittenberg-Moerman

2016

J of Accounting Research

241

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“…Given that lenders most probably use private (soft) information in early stage firms (see Degryse and Ongena 2005;Agarwal and Hauswald 2010;Hollander and Verriest 2016), outside investors can use signals based on this relationship to reduce the stringent informational asymmetry and risk they constantly face. Taking these arguments together, we posit that both cash holdings and the bank-firm relationship are two important information channels that could explain the significant positive relationship between business debt and outside equity investments.…”

Section: Discussionmentioning

confidence: 99%

Information Asymmetry Reduction in Opaque Contexts: Evidence From Debt and Outside Equity Financing in Early Stage Firms

Epure

Guasch

2016

SSRN Journal

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This study analyzes the relationship between debt and outside equity investments in early stage firms. The existing evidence on this relationship is scarce and inconclusive, mostly due to the pervasive opaqueness of new ventures. We argue that debt and its usage can be valuable signals for outside investors facing severe information asymmetries. In addition, we examine how personal and business debt could signal different information to outside investors. Using panel data on new ventures in the US from the Kauffman Firm Survey, we find evidence consistent with our arguments. We reveal that debt, and particularly business debt, is positively related to outside equity investments, especially in times of economic distress. We posit that start-ups with higher levels of business debt can send more credible signals to capital markets, and identify cash holdings and the firm-bank relationship as possible information channels for outside investors.

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“…Li and Zhao (2016) find evidence that stock returns have stronger comovement with the returns of nearby firms than with those of distant firms. Focusing on bank sector, Hollander and Verriest (2016) document that increased distance constraints faced by lenders in acquiring borrower information lead to more restrictive bank loan contracts.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Firm geographic location and voluntary disclosure

Derouiche

Jaafar

Zemzem

2016

Journal of Multinational Financial Management

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This study aims to shed light on the effect of a firm's geographic location on its voluntary disclosure policy. It hypothesizes that a firm's geographic distance from metropolitan areas increases the cost of oversight of managerial actions, which creates incentives for remotely located firms to make more voluntary disclosures in their annual reports that improve information available to investors and hence mitigate agency conflicts. Based on a sample of 260 French listed firms spanning the period 2007 to 2010, we find support for our hypothesis that as a firm's distance from the Paris region increases, its level of voluntary disclosure in annual reports increases as well. This is consistent with the notion that remote firms are likely to pre-commit to higher voluntary disclosure so as to reduce oversight costs arising from geographic remoteness and mitigate agency conflicts. Our results are robust to alternative measures of voluntary disclosure, to several geographic location proxies, and to alternative estimation techniques. Collectively, they confirm the positive effect of distance on the extent of voluntary disclosure.

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Bridging the gap: the design of bank loan contracts and distance

Cited by 168 publications

References 63 publications

Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective

Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective

Information Asymmetry Reduction in Opaque Contexts: Evidence From Debt and Outside Equity Financing in Early Stage Firms

Firm geographic location and voluntary disclosure

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