1. Major Government Customers and Loan Contract Terms
- Author
-
Yun Lou, Bin Li, Daniel Cohen, Ningzhong Li, Paris-Jourdan Sciences Economiques (PSE), École normale supérieure - Paris (ENS Paris), Université Paris sciences et lettres (PSL)-Université Paris sciences et lettres (PSL)-Institut National de la Recherche Agronomique (INRA)-École des hautes études en sciences sociales (EHESS)-École des Ponts ParisTech (ENPC)-Centre National de la Recherche Scientifique (CNRS), Key Laboratory of Molecular Virology & Immunology (LMVI), Institut Pasteur de Shanghai, Académie des Sciences de Chine - Chinese Academy of Sciences (IPS-CAS), Réseau International des Instituts Pasteur (RIIP)-Réseau International des Instituts Pasteur (RIIP), Groupement de Recherche et d'Etudes en Gestion à HEC (GREGH), Ecole des Hautes Etudes Commerciales (HEC Paris)-Centre National de la Recherche Scientifique (CNRS), HEC Paris Research Paper Series, Haldemann, Antoine, and École normale supérieure - Paris (ENS Paris)-Institut National de la Recherche Agronomique (INRA)-École des hautes études en sciences sociales (EHESS)-École des Ponts ParisTech (ENPC)-Centre National de la Recherche Scientifique (CNRS)
- Subjects
Cross-collateralization ,ComputingMilieux_LEGALASPECTSOFCOMPUTING ,Government Customers ,JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G38 - Government Policy and Regulation ,Corporate finance ,Loan Contract Terms ,Accounting ,Bridge loan ,0502 economics and business ,050207 economics ,Non-conforming loan ,Finance ,Government ,050208 finance ,business.industry ,05 social sciences ,050201 accounting ,JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill ,General Business, Management and Accounting ,Maturity (finance) ,Participation loan ,Loan ,Loan sale ,[SHS.GESTION]Humanities and Social Sciences/Business administration ,Business ,Non-performing loan ,[SHS.GESTION] Humanities and Social Sciences/Business administration ,Public finance - Abstract
We examine the relation between the presence of U.S. government as a major customer and a supplier firm’s loan contract terms, using major corporate customers as a benchmark. We find that firms with major government customers are associated with fewer covenants and a lower likelihood of having performance pricing provisions in their loan contracts. In contrast, we do not find such associations for firms with major corporate customers. Further, we find no evidence that the existence of major government customers is related to the supplier firm’s loan spread, security, or maturity. We conjecture that lenders benefit from the stricter monitoring of the government as a major customer and thus use fewer covenants and performance pricing provisions when lending to firms with major government customers than when lending to those with major corporate customers. We provide evidence consistent with this conjecture.
- Published
- 2016