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Management earnings forecasts and bank loan contracting

Author

Listed:
  • Tien‐Shih Hsieh
  • Byron Y. Song
  • Ray R. Wang
  • Xinlu Wang

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.

Suggested Citation

  • Tien‐Shih Hsieh & Byron Y. Song & Ray R. Wang & Xinlu Wang, 2019. "Management earnings forecasts and bank loan contracting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 46(5-6), pages 712-738, May.
    • Handle: RePEc:bla:jbfnac:v:46:y:2019:i:5-6:p:712-738
    DOI: 10.1111/jbfa.12371
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    Cited by:

    1. Kiyoung Chang & Ying Li & Ha‐Chin Yi, 2021. "Informed equity ownership and bank loan contracting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1368-1403, July.
    2. Hanwen Chen & Siyi Liu & Xin Liu & Jiani Wang, 2022. "Opportunistic timing of management earnings forecasts during the COVID‐19 crisis in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1495-1533, April.
    3. Robin Chen & Chia‐Wei Huang & Chih‐Yung Lin, 2022. "Board corruption and loan contracts," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1929-1956, October.

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