Short-Termism Spillovers from the Financial Industry

• 成果类型: Article
• 署名作者: Bird, Andrew; Ertan, Aytekin; Karolyi, Stephen A.; Ruchti, Thomas G.
• 署名单位: Chapman University System; Chapman University; University of London; London Business School; United States Department of the Treasury; Office of the Comptroller of the Currency; Carnegie Mellon University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhab108
• 发表日期: 2022
• 页码: 3467
• 关键词: LOAN LOSS PROVISIONS; firm-level evidence; earnings management; HOME BIAS; lending relationships; CAPITAL MANAGEMENT; Control rights; real; credit; banks

摘要

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.