Bird, A, Ertan, A, Karolyi, S A and Ruchti, T G (2022) Short-termism spillovers from the financial industry. Review of Financial Studies, 35 (7). pp. 3467-3524. ISSN 0893-9454
Abstract
To meet short-term benchmarks, lenders may alter their monitoring behavior, providing a channel for short-termism to spill over to their borrowers. We find that short-termist lenders are significantly more likely to enforce covenant breaches. This behavior is pronounced when performance benchmarks are precise or salient, and when managers have high pay-performance sensitivity, but not when they face strong shareholder governance. Affected borrowers are more likely to switch lenders, pay higher spreads on renegotiated loans, and reduce investment. Our findings suggest that bank managers trade off relationship capital for income-boosting fees and term changes from covenant enforcement to meet earnings benchmarks
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Item Type: | Article |
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Subject Areas: | Accounting |
Additional Information: |
© 2020 Society for Financial Studies.
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Date Deposited: | 05 Nov 2020 14:43 |
Date of first compliant deposit: | 04 Nov 2020 |
Subjects: | Financial markets |
Last Modified: | 05 Nov 2024 03:12 |
URI: | https://lbsresearch.london.edu/id/eprint/1538 |