Corporate Loan Securitization and the Standardization of Financial Covenants

Bozanic, Z, Loumioti, M and Vasvari, F (2018) Corporate Loan Securitization and the Standardization of Financial Covenants. Journal of Accounting Research, 56 (1). pp. 45-83. ISSN 0021-8456 OPEN ACCESS


We examine whether syndicated loans securitized through Collateralized Loan Obligations (CLOs) have more standardized financial covenants. We proxy for the standardization of covenants using the textual similarity of their contractual definitions. We find that securitized loans are associated with higher covenant standardization than non-securitized institutional loans. In addition, we show that CLOs with more diverse or frequently rebalanced portfolios are more likely to purchase loans with standardized covenants, potentially because standardization alleviates information processing costs related to loan monitoring and screening. We also document that covenant standardization is associated with greater loan and CLO note rating agreement between credit rating agencies, further supporting the relation between lower information costs and covenant standardization. Overall, our study provides evidence that loan securitization is related to the design of standardized financial covenants.

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Item Type: Article
Subject Areas: Accounting
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This is the peer reviewed version of the following article: Bozanic, Z., Loumioti, M. and Vasvari, F. P. (2018), ‘Corporate Loan Securitization and the Standardization of Financial Covenants’. Journal of Accounting Research 56(1) pp45-83, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Date Deposited: 05 Sep 2017 09:51
Date of first compliant deposit: 04 Sep 2017
Subjects: Financing
Credit management
Last Modified: 19 Jul 2024 02:03

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