Loan term interdependences and imformation asymmertries
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Loan term interdependences and imformation asymmertries
Loan term interdependences and imformation asymmertries
Loan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries Department of Accounting and Finance, Monash University) sluimal Perera(The Department of Accounting and Finance, Monash University)(Preliminary draft: Please do not quote, comments arc welcome)AbstractThis study examines whether loan terms are jointly determined and if information asymmetries' effe Loan term interdependences and imformation asymmertries cts on them across revolving and term loans. A simultaneous equation model is applied for revolving and term loans made by US commercial hunks to US cLoan term interdependences and imformation asymmertries
orporate borrowers from 1987 to 2009. The findings suyyest that loan terms are jointly determined and that information asymmetries’ effects on them diLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries erms in a simultaneous context therefore may better reflect reality. This is also the first examines the effect of information asymmetries on loan terms, especially on covenants and loan size, in such a context. Lastly, this is the first study that distinguishes revolving und term loans to inspect t Loan term interdependences and imformation asymmertries hese issues.Key words: l oan terms, information asymmetry, revolving loans, term loans.IF. I. classification: G21P11D Student. Email. PhuQuoc.Pham@monLoan term interdependences and imformation asymmertries
ash.edu11. IntroductionIllis paper studies the interaction of loan lenns and how their selection addresses irrfonnation asymmetries in revolving and tLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries contract terms as a “package" for an optimal contract (Mehlik and Piaui. 1986). This idea was first proposed by Dennis. Nandy. and Sharpe (2000). Their research argues against focusing on a single contract term if these terms arc jointly designed. Others subsequently also supported the idea of loan Loan term interdependences and imformation asymmertries term interdependency (e.g. Brick and Paha. 2007; Chav a. Livdan. and Pumanandam, 2009; Wittenberg-Moorman. 2009; Bharath. Dahiya, Saunders, and SriniLoan term interdependences and imformation asymmertries
vasan, 2011). These studies, however, only allow for the jomlness between some loan terms and arc inconsistent, Their conflicting results might be expLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries y loan terms (Ĩ.C., price, collateral, maturity, covenants, and size) are simultaneously determined. Hence, the interdependences between loan price, collateral and maturity themselves when interacting with covenants and loan size remain unknown. Therefore, an examination of the interdependences betw Loan term interdependences and imformation asymmertries een all five key loan terms might be necessary.Tills paper is motivated to address this gap by examining these interdependences and also adds to the lLoan term interdependences and imformation asymmertries
iterature by investigating whether the effects of information asymmetries on loan terms differ as these terms are simultaneously designed. The simultaLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries e the effect of information asymmetries on loan terms do not consider then jouitncss (Dennis, el al., 2000). These issues might differ depending different types of loans. Allhough many studies omit die differences in revolving and term loans (Strahan, 1999: Coleman. Esho, and Sharpe. 2002; Goltcsman Loan term interdependences and imformation asymmertries and Roberts, 2001. 2007), none considers these issues across them.Using a sample of 12.207 revolving and 3.972 term loans made by US commercial banksLoan term interdependences and imformation asymmertries
to US borrowers (excluding banks and non-bank financial institutions) from I January 1987 to 31 December 2009. dlls study examines these tliree gaps Loan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries 1977), Smith and Warner (1979), Bester (1985), Flannery (1986), Chan and Thakor (1987), Milde and Riley (1988), Boot, Thakor, and Udell (1991), and Diamond (1993).9on how information asymmetries affect loan terms in the context of such interdependent relationshipsTins study contributes to bank lendi Loan term interdependences and imformation asymmertries ng literature in several vital ways. This is the fust studies whether there is the joint determinant of all five key loan terms which is believed to bLoan term interdependences and imformation asymmertries
ring the findings closer to the reality. The study also is the first that officially examines information asymmetries’ effects on loan covenants and sLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries ’ interaction. I llis research also the fust examines these above issues across both revolving and term loans.The rest of this paper is structured as follows. Section 2 reviews rhe literature on loan term determinants and information asymmetry effects to hypothesize the research. Data and empirical Loan term interdependences and imformation asymmertries method are described in Section 3. Empirical results and conclusion are presented in Section 4 and 5 respectively.2. Literature review and hypotheses*Loan term interdependences and imformation asymmertries
development2.1.T he jointness of loan termsMany studies acknowledge the joint determinants of some loan terms. For instance, banks screen then borrowLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries ss risk due to adverse selection and moral hazard (Wiucnbcrg-Mociman. 2009). Hie interrelationship between collateral and maturity may- be also substituted (T eeth and Scott. 1989: Degryse and van Cayscclc, 2000: Voordcckcrs and Steijvcrs. 2006). or complementary (Chau and Kanatas, 1985; Besanko and Loan term interdependences and imformation asymmertries Thakor. 1987b. 1987a). Alternatively, maturity can be substituted by covenants as long-term loans arc riskier (han short-term ones then they requireLoan term interdependences and imformation asymmertries
more covenants (S. c. Myers, 1977).Lenders may employ an even greater combination of loan terms to address information asymmetries. For instance, non-Loan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries ateral and price might be simultaneously designed to obtain an optimal solution in presence of information asymmetries and credit lisk (Steijvers and Voordeckers, 2009). Where collateral reduce then risk exposure, lenders can then extend the loan’s maturity or lower the interest rate (Ortiz-Molina a Loan term interdependences and imformation asymmertries nd Penas. 2008).3These ideas are consistent with the Melnik and Plain (1986) view that borrowers tradeoff between different loan terms offered by lendLoan term interdependences and imformation asymmertries
ers to achieve then optional contracts. Therefore, it is likely that these loan terms (i.e.. price, collateral, maturity, covenants and size) are joinLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries lateral, maturity, covenants, and size) are both bidirectional and unidirectional.The signs of the various loan term coefficients might be explained by different theories. The signalling theory suggests that if good borrowers will pledge collateral to signal their good credit ability and thus receiv Loan term interdependences and imformation asymmertries e a lower price.3 Tn contrast, the risk observed theory claims that high-risk borrowers arc more likely to pledge collateral and still pay a high pricLoan term interdependences and imformation asymmertries
e because their collateral might offset not enough. While most empirical studies support signalling theory.* 1 some also find support for the risk obsLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries rc the trade-off theory and the credit quality theory (Gottesman and Roberts, 2004). The trade-off theory presumes a positive relationship between price and maturity. This comes horn both rhe lender and borrower objectives. For lenders, to avoid an agency problem with borrowers, they lend to make sh Loan term interdependences and imformation asymmertries orter loans, lor borrowers, short-term loans present liquidity problems when the loan is dire so they prefer longer-term loans. T enders will issue loLoan term interdependences and imformation asymmertries
ng-term loans but only at a higher price. Some empirical studies such as Coleman. Esho, and Sharpe (2002) and Bharath et al., (201 I) support for thisLoan term interdependences and information asymmetriesPhu Quoc Pham(The Department of Accounting and Finance, Monash University) Michael Skull}'(The D Loan term interdependences and imformation asymmertries increases with the longer-term loans, lenders charge Irighcr prices to reduce their risk exposure. On the other hand, low risk borrowers may seek shorter loans to signal then high quality and so receive lower prices (e.g.. Flannery (1986) and Kale and Noe (1990)). Some empirical studies also support Loan term interdependences and imformation asymmertries for the latter theory (eg., Strahan (1999). Dennis Ct al., (2000). and Wittenbeig-Mocnuan ).rhe relationship between loarr price arrd covenants can bLoan term interdependences and imformation asymmertries
e explained by the signalling theory of covenants and the agency theory of covenants (Demiroglu and James, 2010). The■! For instance, Bester (1985), CGọi ngay
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