Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2016
Abstract
This study examines how a firm’s business relationship with the U.S. government, in particular, sales to the government, impacts its loan contract terms and how the effect is different from that of major corporate customers. We find that firms with major government customers have a lower number of covenants and are less likely to have performance pricing provisions in their loan contracts than other firms, whereas major corporate customers do not have such impacts. We do not find evidence that major government customers affect the supplier firm’s loan spread, security, or maturity. We conjecture that lenders benefit from the strict monitoring activities of the government customer and reduce the use of covenants and performance pricing in loan contracts when the borrowing firm has a government customer.
Keywords
Government Customers, Loan Contract Terms
Discipline
Accounting
Research Areas
Corporate Reporting and Disclosure
First Page
1
Last Page
51
Identifier
10.2139/ssrn.2868761
Publisher
SSRN
Citation
COHEN, Daniel; LI, Bin; LI, Ningzhong; and LOU, Yun.
Major government customers and loan contract terms. (2016). 1-51.
Available at: https://ink.library.smu.edu.sg/soa_research/1867
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.2868761