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Bank loan spread and private information: pending approval patents

Author

Listed:
  • Marlene Plumlee

    (University of Utah)

  • Yuan Xie

    (Fordham University)

  • Meng Yan

    (Fordham University)

  • Jeff Jiewei Yu

    (Texas A&M University)

Abstract

This study examines a specific source of lenders’ ex ante information advantage, private information about borrowers’ forthcoming patents. We examine this setting to provide evidence of the impact of such private information on borrowers’ cost of debt. We find evidence consistent with lenders incorporating private information by charging borrowers with forthcoming patents a lower spread than borrowers that lack that private information. We document a negative association between loan spread and the citation count on forthcoming patents, consistent with borrowers providing lenders with detailed information regarding future expected cash flows from forthcoming patents and lenders responding through a reduction in interest costs for those borrowers. We also show that the reduction in loan spreads is related to the expected value of the forthcoming patent and is greater for borrowers with higher initial information uncertainty and default risk, and when the lead lender has greater loan concentration in the borrower’s industry. Our results suggest that forthcoming patents are a significant source of private information useful to borrowers and employed by lenders.

Suggested Citation

  • Marlene Plumlee & Yuan Xie & Meng Yan & Jeff Jiewei Yu, 2015. "Bank loan spread and private information: pending approval patents," Review of Accounting Studies, Springer, vol. 20(2), pages 593-638, June.
    • Handle: RePEc:spr:reaccs:v:20:y:2015:i:2:d:10.1007_s11142-014-9304-9
    DOI: 10.1007/s11142-014-9304-9
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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