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The Debt-Contracting Value of Accounting Information and Loan Syndicate Structure


  • We thank Sudipta Basu, Bob Kaplan, Krishna Palepu, Tim Ritchie (Head of Global Loans at Barclays Capital), an anonymous referee, and seminar participants at the 2007 Journal of Accounting Research Conference, the Duke/UNC Fall Camp, the 2007 Financial Economics and Accounting Conference, Harvard Business School, London Business School, Northwestern University, Rotterdam School of Management, UCLA, University of Southern California, and Wharton School for helpful comments. We also thank Moody's Investors Service for providing the historical database on ratings. Bushman thanks the Kenan-Flagler Business School for financial support.


We investigate how both the ownership structure and explicit contractual structure of syndicated loan deals are shaped by the debt-contracting value (DCV) of borrowers' accounting information. DCV captures the inherent ability of firms' accounting numbers to capture credit quality deterioration in a timely fashion. We hypothesize and document that when a borrower's accounting information possesses higher DCV, information asymmetry between the lead arranger and other syndicate participants is lower, allowing lead arrangers to hold a smaller proportion of new loan deals. Further, we document that the influence of DCV on the proportion of the loan retained is conditional on the lead arranger's reputation, the existence of a credit rating, and the lead arranger's previous relationships with the same borrower. Finally, we find that when loans include performance pricing provisions, the likelihood that the single performance measure used is an accounting ratio, rather than a credit rating, is increasing in DCV.