This study investigates the implications of earnings management (EM) on corporate loan pricing. Between two competing hypotheses—signaling hypothesis and managerial opportunism hypothesis, we find that banks price earnings management of the borrowing firm and increase loan spread, as the level of EM increases. Banks view EM as a value-destroying process (managerial opportunism hypothesis) that hampers the borrower’s capacity to repay loan ex post and therefore, demand a marginal increase in loan spread, in order to compensate for the future uncertainty and ex post monitoring cost. The result is robust, using a variety of earning management measurements such as (1) accounting accruals (Jones, 1991); (2) real activities manipulation (Roychowdhury, 2006); and (3) cash flow and earnings volatility and accrual component of earnings volatility (Jayaraman, 2008). While this study also confirm the finding from prior literatures that lender certification and relationship strength have a mitigating effect on information frictions between the lender and borrower, reputable banks and relationship lenders still view active earnings management risk-increasing activities.
Keywords: Earnings management, Real activities management, Accruals manipulation, Performance pricing, Bank loan, Accounting quality, Syndicated bank loan.
JEL Classification: G21, G34
[2015년 제 4차] Earnings Management and Bank Loan Contracting
작성자 : 관리자
조회수 : 1085
게시일 :
2015-12-30