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
Citation
COHEN, Daniel A.; LI, Bin; LI, Ningzhong; and LOU, Yun.
Major government customers and loan contract terms. (2022). Review of Accounting Studies. 27, (1), 275-312.
Available at: https://ink.library.smu.edu.sg/soa_research/1891
Copyright Owner and License
Authors
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/10.1007/s11142-021-09588-7