Publication Type

Journal Article

Version

submittedVersion

Publication Date

3-2022

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.

Keywords

Government Customers, Loan Contract Terms, corporate customers

Discipline

Accounting | Corporate Finance | Government Contracts

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Review of Accounting Studies

Volume

27

Issue

1

First Page

275

Last Page

312

ISSN

1380-6653

Identifier

10.1007/s11142-021-09588-7

Publisher

Springer

Embargo Period

6-27-2021

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1007/s11142-021-09588-7

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