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The purpose of this paper is to investigate whether a firm’s undertaking of a bond IPO influences the monitoring of the private loans granted to the firm by private lenders. If it does, in which direction the monitoring changes?

The author uses both univariate and multivariate analyses to test the hypothesis. For the purposes of this research, the author’s primary data sources are LPC Dealscan, which provides data on private loans; Mergent FISD, which provides data on public bond issues; and the Compustat Industrial Annual Database, which provides the required financial data for the sample firms. The author’s sample covers non-financial US firms for the period of 1991-2010. The author’s final sample consists of nearly 23,000 private loans granted to about 5,500 non-financial US firms.

The major finding of this research is that private lenders increase their degree of monitoring of loans that they extend to a firm after it issues a bond IPO. The results of the two-stage bond IPO anticipation model further strengthen the findings. The evidence suggests that as the firm issues public debt for the first time, private lenders get concerned about the potential increase of agency problems and leverage, and consequently, find it valuable to increase the degree of monitoring of loans. Also, the magnitude of change in monitoring is strongly influenced by the degree of information asymmetry, leverage, profitability, and potential to waste free cash flow.

This paper enhances one’s understanding of the contracting dynamics between private lenders and the firm as it issues in the public debt market. The findings can aid firms anticipate the borrowing conditions they will face if they undertake a bond IPO. Further, the cross-sectional analysis on covenant changes from pre- to post-bond IPO period identifies specific firm characteristics that impact the magnitude of change of covenant intensity and comprehensiveness. As a result, uncertainty regarding post-bond IPO outcomes is reduced for borrowing firms.

The purpose of this study is to investigate the moderating roles of innovation intensity and lenders’ monitoring on the relation between financial slack and performance.

This study adopts an empirical method using data from firms listed in both the Compustat S&P500 and Boardex for the period 2010 to 2019 to analyze the effects of innovation intensity and lenders’ monitoring on the relation between financial slack and performance.

The authors find that financial slack is positively related to performance, and this relation is stronger as innovation intensity increases. Furthermore, we demonstrate that lenders’ monitoring strengthens the positive relationship between financial slack and performance.

First, this study focuses on the effects of financial slack, research and development (R&D) intensity and lenders’ monitoring on financial performance. Future research might extend this study by investigating the effects of these variables on non-financial performance. Second, the data and results do not provide insights into the reasons for firms to accumulate financial slack. Future research might conduct a longitudinal field study to understand why firms build financial slack. Finally, this study only uses R&D intensity and lenders’ monitoring as the moderating variables. Future studies might incorporate other contingency variables such as firms’ budgeting and budget-based compensation systems to provide useful insights into the relationship between financial slack and performance.

This study provides important insights into the value of financial slack for firms that invest heavily in R&D activities. This study also provides useful insight into the benefits of lenders’ monitoring to mitigate managers’ unethical behavior.

This study provides useful insights for companies that invest heavily in innovation activities by showing that financial slack is beneficial for this company and lenders’ monitoring is needed to discipline managers in using the slack resources.

This study is the first to investigate the moderating effects of innovation intensity and lenders’ monitoring on the relation between financial slack and performance. Previous studies focus their investigations on the direct effect of financial slack and performance.

Faced with the financing problem of small-medium enterprises (SMEs), China has attempted to establish as many as third party's collateral institutions. The paper aims to study the design of collateral arrangements including collateral fee rates, risk sharing, collateral capital requirements, types of collateral institutions and recollateral institution, etc.

The paper extends the model of Holmstrom and Tirole to develop the analytic framework of the theory of financing collateral. From the perspective of contract design, the paper establishes a moral hazard model focusing on the minimum capital requirement of the borrower under the condition of risk neutral and limited liability, while considering the structure of lender-collateral institution-borrower.

According to the research, only under certain conditions can third party's collateral arrangements tackle the financing problems of SMEs. Diversification, anti-collateral and linked-transactions are three means to improve financing conditions, but the most important way is efficient monitoring by collateral institutions, especially when it has relative advantage over the lender. In order to improve financing conditions of SMEs, China should rely more on efficient monitoring by banks not on excess development of collateral institutions, meanwhile relax rigid collateral supervision policies. Collateral institutions should be industry-specific, association or transaction-related type.

First, from the perspective of contract design, the paper analyzes the comprehensive institutional arrangements of third party's collateral considering mutual relationships of component elements and develops the analytic framework of the theory of third party's collateral, especially points out necessary conditions of its efficient arrangements. Second, the paper studies various efficient financing mechanisms under the institutional arrangements of third party's collateral and focusing on the role of monitoring and monitors, and the paper also has important policy implications, i.e. the paper should develop specific collateral institutions and promote monitoring role of credit institutions.

Credit Default Swap (CDS) trading alters equilibrium interactive monitoring of external corporate monitors due to a possible change in private lenders' incentive to monitor client firms. This study explores how audit fees change in response to CDS trade initiation on client firms and how this effect is moderated by investor protection.

With 6,052 cross-country firm observations, the author conducts estimations in the systems dynamic general methods of moments framework.

The author documents that audit fees rise on average after CDS trade initiations with and/or without investor protection. Meanwhile, change in auditors' risk perception result in increased audit costs when CDS trade initiation and investor protection interact. The effect of CDS trading on audit fees remain after controlling for firm, audit, and auditor features are robust to different proxies of audit cost.

The need for firms in high investor protection jurisdictions to initiate CDS trade to implement policies in order to maximize their gains from investor protection activities to lessen the overall impact of any increased audit cost that may arise. Furthermore, CDS regulation may be strategically targeted to lessen the effect of increased audit costs on firms after initiation. This would ensure that the resulting increase in audit cost may not materially impact the cash or profitability position of such firms.

This study is distinct from previous ones by focusing on variation in private lenders incentive to monitor after CDS trade initiation after controlling for possible monitoring by short-term creditors. Given that monitoring is not costless for private lenders and CDS trading on their borrowers causes a change in this cost structure, the author documents how auditors react to such changes in incentive to monitor.

信用違約互換交易會改變外部監督機制的均衡互動監測，這是因為私人貸款者去監控客戶公司的激勵可能有所改變。本研究擬探究審計費用如何改變，以應對向客戶公司進行的信用違約互換交易啟動;研究亦探討投資者保障、如何緩和上述的影響。

我們透過6,052個穿越全國的企業觀察，進行了對系統動力廣義矩估計體系的估測。

無論投資者保障存在與否，信用違約互換交易啟動必帶來審計費用一般的平均升高，我們已把這關聯記錄下來。同時，當信用違約互換交易啟動和投資者保障兩者互相影響時，審計員的風險認知的改變，是會導致審計費用增加的。若拔除公司和審計的影響，信用違約互換交易對審計費用的影響會保持不變;而且，就各個不同的審計費用代理權而言，審計員特點是牢固的。

本研究的結果，確定了若公司屬高投資者保護管轄權的類別，則有需要去啟動信用違約互換交易來實施政策，其目的為能從投資者保障的行動中取得最大的收益，從而減弱審計費用的增加所帶來的全面影響。再者，信用違約互換的管理或許可戰略性地訂立目標，俾能減弱於啟動後，審計費用的上昇對公司帶來的影響;這或會確保審計費用的增加、不會對有關公司的貨幣頭寸或盈利狀況產生重大的影響。

本研究有別於從前的研究，因它的焦點在於短期債權人可能的監督的影響給拔除的情況下，在信用違約互換交易啟動後，以監督為目的私人貸款者激勵的變化。鑒於對私人貸款者來說，監督不是不需要成本的;而且，為他們的借貸者的信用違約互換交易會為這個成本結構帶來變化，我們記錄了審計員如何對以監督為目的的激勵的有關改變作出回應。

The aim of this paper is to examine the question of the specialness of banks by addressing concerns raised in the recent studies and deriving policy implications for the future of banking. The specialness of banks has been well documented in the finance literature. More recent research, however, calls into question the special nature of banks.

We use event study methodology to study 423 bank loan announcements from 1988 to 1996 and examine the returns relative to proxies for the bank ' s monitoring incentives and skill using ordinary least squares (OLS) regressions.

Our results indicate borrower abnormal announcement returns are positively related to proxies for the bank ' s monitoring incentives and skill as measured by: the ratio of uninsured deposits to total loans; a risk-adjusted measure of recovered charge-offs; and the relative bank-to-borrower capital ratio.

The results reveal how the fragile nature of the bank ' s structure improves the bank ' s incentives to monitor borrowers.

Our results can inform the current debates in the Fed and in Congress surrounding reapplying the Glass-Steagall Act and limiting the size of banks. We show that banks were special before the Gramm-Leach-Bliley Act and when fewer banks belonged to the too-big-to-fail category. This suggests that reregulating banks to re-establish their fragile nature will re-establish them as information-generating intermediaries instead of just transactional institutions.

Our findings have not previously been documented but are broadly consistent with models developed by Calomiris and Kahn (1991) and especially Diamond and Rajan (2001).

This study aims to examine whether lenders’ power and other attributes influence corporate social responsibility (CSR) reporting in Bangladesh.

This study uses content analysis to examine specific CSR-related attributes from 115 publicly listed firms in Bangladesh. By using various attributes of social and environmental reporting a disclosure index is also constructed. This study uses an Ordinary Lease Square Regression analysis to examine the relationship between stakeholders’ power and CSR reporting.

The finding is that lenders’ power, or the extent of borrowing, does not influence CSR exposure. However, lenders’ cost of monitoring and ability to monitor significantly and positively influence CSR exposure.

This study is subject to some limitations, such as the subjectivity or judgement associated in the coding process.

The implication of this study is that, when multiple borrowing creates “claim-dilution” problems, lenders are found to influence CSR activity.

This study also supports the stakeholder theory and contributes to the literature on the practices of CSR reporting in the context of developing countries.

The aim of this study is to investigate whether debt maturity matters for the choice of earnings management strategy (i.e. accruals earnings management and real earnings management).

The sample involves 486 American listed firms extracted from fortune 1,000 over the period 2006–2014. Panel data regression models are employed to empirically test the impact of short-term debt and long-term debt on manager's choice of earnings management form. The generalized least square technique is applied to estimate the parameters of the regression models.

The results show that managers are more likely to manage earnings through real activities and reduce their use of accruals earnings management once short debt is increasing because the latter induces heavy lender's scrutiny. The managers move hence to real earnings management due to a lower possibility of being discovered. Moreover, the results reveal a simultaneous use of accruals earnings management and real earnings management for firms with high long-term debt. This finding highlights that long-term debt does not produce regular lender's enforcement allowing managers to use both earnings management techniques to reach earnings targets.

This research has two limitations. Like many other studies, the measure of discretionary accruals is subject to measurement errors. Moreover, the sample exclusively involves large firms extracted from Fortune 1,000. Therefore, the attained results may be not available for small and medium firms.

The findings have implications for both researchers and lenders. For researchers, the present work points out that the decision about the debt maturity structure is crucial for all managers because they establish their earnings management policy accordingly. For lenders, the findings imply that increasing scrutiny effectively constrains accounting manipulations but does not eliminate earnings management activities altogether. The managers move to another earnings management strategy (i.e. real earnings management). This evidence may support the lenders and the creditors in their decision-making processes.

This paper adds to the accounting literature by providing new and interesting evidence on the role of debt maturity on the trade-off between the earnings management tools. Prior studies provided mixed finding for the issue of earnings management in levered firms. The findings of this study should be viewed as a first step to understand the mixed results on this issue. While most papers focus on one earnings management form when they examine the earnings management in levered firms, the authors highlight the impact of debt on both accruals and real earnings management simultaneously.

The purpose of this paper is to analyze the functioning of the rural credit market of Lima from 1825 to 1865, paying special attention to the effect of information asymmetries on the access to rural credit.

The article relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of notarized loans for 1825–1865 and on property tax reports, collected from the National Archives of Peru, to determine the effect of information asymmetries, collateral and regional lending on access to credit. The article also analyzes the legal system of Peru during this period to determine whether property rights were well protected and so collateral could be used in the rural credit market.

A revision of the legislation shows that the legal system had some deficiencies, but allowed landlords and tenants to use their assets as collateral. Tax reports show that landlords and tenants owned valuable capital that could be used as collateral. Evidence from notarized loans shows that information asymmetries severely restricted inter-regional lending. In Lima, however, notaries played a role as financial intermediaries, providing the information about potential borrowers and allowing landlords and tenants to access credit. As a result, access to credit was significant for landlords and tenants.

This paper is one of the few historical studies on the role of information asymmetries in the allocation of rural credit in Latin America. It contributes to our understanding of credit markets prior to the creation of banks.

This study has two primary objectives. First, it analyzes the information content of confidentiality strictness in corporate loan credit agreements. Second, it examines how confidentiality strictness impacts covenant design, lending syndicate structure and loan pricing.

Using a sample of 6,327 loan credit agreements originated by US public firms in the period of 1996–2017, this study measures the confidentiality strictness in loan contracts using textual analyses that capture the appearance of confidentiality-related words and the length of confidentiality provision. All regressions include relevant loan characteristics, firm-specific accounting variables, industry and year fixed effects. To address the endogeneity concern, the paper uses borrowing firms' rival cash holdings and R&D expenditures to instrument for confidentiality strictness in two-staged least square regressions.

Borrowers which have higher R&D and operate in more competitive product markets have tighter confidentiality policies. Furthermore, this study reveals that confidentiality strictness is negatively associated with the imposition of financial covenants, especially performance covenants. Loan contracts for borrowers with stricter confidentiality on average have more relaxed covenant intensity, measured by the number of covenants. The study also shows that stricter confidentiality attracts finance companies, which have strong expertise in product markets of their parent firms, into the lending syndicate. However, confidentiality-conscious borrowers with higher degree of information asymmetry are subject to higher loan spreads.

This study provides the first examination of confidentiality policies in loan contracts and supports the idea that loan provisions are not simply made of “boilerplate” language. The results suggest that, for confidentiality-sensitive borrowers, the greater exposure to product market competition helps control managerial slack and substitute monitoring from financial markets.

Pledging collateral to secure loans is a prominent feature in financing contracts around the world. Existing theories disagree on why borrowers pledge collateral. It is even more challenging to understand why in some countries collateral coverage exceeds, for example, 300% of the value of a loan. This study looks at the association between collateral coverage and country-level governance and various institutional proxies. It investigates the economic implications of steep collateral coverage and sketches policy options to lower ex-ante asymmetric information and ex-post agency problems. Within this framework, should a lender collect the debt forcibly on default and liquidated assets fetch prices below outstanding loan values, the lender’s loss is covered through credit insurance, which would significantly reduce the need for steep collateral coverage. This proposal may increase level of private credit, investment and growth; particularly, in a number of developing countries where collateral spread is the main inhibitor of finance.