Corporate Noncompliance: Do Corporate Violations Affect Bank Loan Contracting?

Author First name, Last name, Institution

Huu Nhan Duong, Monash University
Mariem Khalifa, Zayed University
Ali Sheikhbahaei, Monash University
Mohammed Aminu Sualihu, Zayed University

Document Type

Article

Source of Publication

Journal of Banking & Finance

Publication Date

5-1-2024

Abstract

We examine the effect of corporate violations on bank loan contracting and document that borrowers with higher corporate violation penalties have higher loan costs. Higher corporate violations are also associated with more restrictive covenants and a higher likelihood of a collateral requirement. The increasing effect of corporate violations on loan costs is concentrated in opaque firms or those subject to more competitive markets or ineffective monitoring. Firms with higher violation penalties have lower future performance and a higher number of future violations. Overall, our results demonstrate that banks factor corporate violations into their lending decisions, thus shedding new light on the economic consequences of corporate violations through the creditors’ lens.

DOI Link

10.1016/j.jbankfin.2024.107225

ISSN

0378-6372

Publisher

Elsevier BV

First Page

107225

Last Page

107225

Disciplines

Business

Keywords

Corporate violations, Bank loan contracting, Loan costs, Covenant requirements, Collateral requirement

Recommended Citation

Duong, Huu Nhan; Khalifa, Mariem; Sheikhbahaei, Ali; and Sualihu, Mohammed Aminu, "Corporate Noncompliance: Do Corporate Violations Affect Bank Loan Contracting?" (2024). All Works. 6567.
https://zuscholars.zu.ac.ae/works/6567

Indexed in Scopus

no

Open Access

no