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Corporate Misreporting and Bank Loan Contracting

  • John R. Graham
  • Si Li
  • Jiaping Qiu

This paper is the first to study the effect of financial restatement on bank loan contracting. Compared with loans initiated before restatement, loans initiated after restatement have significantly higher spreads, shorter maturities, higher likelihood of being secured, and more covenant restrictions. The increase in loan spread is significantly larger for fraudulent restating firms than other restating firms. We also find that after restatement, the number of lenders per loan declines and firms pay higher upfront and annual fees. These results are consistent with the view that banks use tighter loan contract terms to overcome risk and information problems arising from financial restatements.

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File URL: http://www.nber.org/papers/w13708.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13708.

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Date of creation: Dec 2007
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Publication status: published as Graham, John R. & Li, Si & Qiu, Jiaping, 2008. "Corporate misreporting and bank loan contracting," Journal of Financial Economics, Elsevier, vol. 89(1), pages 44-61, July.
Handle: RePEc:nbr:nberwo:13708
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