Bank Loan Commitment Contracts: Data, Theory, and Tests

Shockley, Richard L.; Thakor, Anjan V.

doi:10.2307/2953711

Cited by 190 publications

(48 citation statements)

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“…Violations can lead to increases in interest rates, requests for the early payment of debt, and additional restrictions on the borrower's activities (Beneish and Press 1993). On the other hand, a renewal of bank loans conveys positive news to the stock market (Lummer and Mcconnell 1989;Shockley and Thakor 1997).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Effect of Bank Monitoring on Earnings Management of the Borrowing Firm: An Empirical Investigation

Jha

Shankar

Prakash

2015

J of Financial Research

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The literature on bank monitoring posits that strong bank monitoring can either increase or decrease the earnings management of the borrowing firm. We test these two competing hypotheses and find that earnings management (measured by the absolute value of the discretionary accruals) is higher when monitoring is strong-unless the firm is close to default. This result suggests that it might not be appropriate to view bank monitoring as always curbing corporate misbehavior. Our findings are based on examining 22,526 financial statements of private and public firms in India between 2001 and 2009.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Effect of Bank Monitoring on Earnings Management of the Borrowing Firm: An Empirical Investigation

Jha

Shankar

Prakash

2015

J of Financial Research

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“…Studies of financial markets' responses to announcements of bank loans usually indicate a positive effect of new bank loans on firms' values (Slovin et al, 1992;Best and Zhang, 1993;Shockley and Thakor, 1998.) Analysis of bank lending behaviour focused on banks' liabilities suggests that, thanks to their access to core deposits, banks can protect themselves from exogenous shocks and consequently insulate long-term borrowers from exogenous credit shocks (Berlin and Mester, 1999).…”

Section: Empirical Literaturementioning

confidence: 99%

Bank Relationships and Firms' Financial Performance: The Italian Experience

Castelli¹,

Dwyer²,

Hasan³

2011

Euro Fin Management

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We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold-up problems.

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“…52 See also James [1987], Kang et al [2000], Lummer and McConnell [1989], and Shockley and Thakor [1997]. structure if banks without relationships (non-core banks) incur similar lending costs.…”

Section: Iv(ii) Applicability To Other Industriesmentioning

confidence: 99%

Relationships, Competition and the Structure of Investment Banking Markets

Anand

Galetovic

2001

SSRN Journal

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It is well known that competition can destroy incentives to invest in firmspecific relationships. This paper examines how the tension between relationships and competition is resolved in the investment banking market, which for decades has been characterized by both relationships and competition. The model studies the impact on relationships of four different dimensions of competition: non-exclusive relationships, competition from arm's-length intermediaries, non-price competition, and endogenous entry. The analysis shows how market equilibrium adjusts so that relationships are sustained in the face of such competition. Banks are shown to establish relationships without either local or aggregate monopoly power. The model rationalizes two distinct empirical regularities of market structure: the invariance of market concentration to market size; and a pyramidal market structure with an oligopoly comprising similar-sized players at the top and a large number of small banks at the bottom. The analysis may also shed light on the industrial organization of other professional service industries.

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Bank Loan Commitment Contracts: Data, Theory, and Tests

Cited by 190 publications

References 0 publications

Effect of Bank Monitoring on Earnings Management of the Borrowing Firm: An Empirical Investigation

Effect of Bank Monitoring on Earnings Management of the Borrowing Firm: An Empirical Investigation

Bank Relationships and Firms' Financial Performance: The Italian Experience

Relationships, Competition and the Structure of Investment Banking Markets

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