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 |
| Early online date | 17 Jan 2019 |
| DOIs | |
| Publication status | Published - May 2019 |
| Externally published | Yes |
Funding
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.
Keywords
- bank loan contracting
- good news
- management earnings forecast
- management forecast errors
- voluntary disclosure