Alternative Information Sources and the Information Content of Bank Loans




    Search for more papers by this author
    • The authors are from the University of South Alabama and the Financial Market Division of Cargill, Inc., respectively. We thank the editor, René Stulz, and an anonymous referee for their helpful suggestions and comments. We also thank Jayant Kale, Thomas Noe, Stephen Smith, Stephen Timme, and participants of the Georgia State University Finance Workshop. We thank IBES, Inc. for providing the data from the Institutional Brokers Estimate System. Much of the work on this paper was completed while the authors were Ph.D. students at Georgia State University. All errors are solely the responsibility of the authors.


This paper examines the information content of bank loan agreements. We differentiate borrowers according to financial analysts' percentage earnings forecast errors and most recent forecast revisions. The empirical results suggest that banks rely on other indicators as initial screening devices to determine where to best deploy their evaluation and monitoring efforts. If these other indicators are reliable and signal-improving prospects, banks do little further investigation. However, if the indicators are noisy and signal-declining prospects, banks have incentives to expend resources to investigate the borrowers, resulting in the production of valuable information.