Private information and bank-loan pricing: The effect of upcoming corporate spinoffs

• 成果类型: Article
• 署名作者: Hope, Ole-Kristian; Porumb, Vlad-Andrei; Rusanescu, Simona; Vyas, Dushyantkumar
• 署名单位: University of Toronto; University of Manchester; Alliance Manchester Business School; University of Groningen; University of Toronto
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12881
• 发表日期: 2023
• 页码: 2373-2408
• 关键词: debt contracting evidence; internal control weakness; financial intermediation; Accounting information; firm performance; QUALITY; offs; lenders; CHOICE; WEALTH

摘要

Corporate spinoffs are important events that are accompanied by valuation and credit-risk implications for the parent firm. Among other benefits, spinoffs can improve corporate focus and enhance valuation transparency. In the debt-contracting context, however, spinoffs can also be associated with negative outcomes for the divesting firms. We examine whether banks, due to their timely access to material private information, are able to ascertain the likelihood and the implications of impending spinoffs for the parent firm before a formal public announcement of the spinoff. Our empirical analyses indicate that, in the 365-day pre-spinoff announcement period, banks charge incrementally higher (lower) spreads to borrowers with increased (decreased) post-spinoff riskiness relative to nondivesting firms. This suggests that, while lenders recognize the value- and transparency-enhancing effects of spinoffs, they are also able to foresee potentially negative implications of these divestitures. Cross-sectional analyses indicate that banks charge incrementally lower loan spreads if spinoffs result in high-risk borrowers having either higher reporting quality or lower reporting or operational complexity. These results suggest that the post-spinoff increase in riskiness is compensated by the divestiture benefits typically associated with spinoffs. Similarly, high-risk borrowers incur larger spreads if they do not undergo focus-increasing spinoffs. Overall, our findings suggest that banks are able to ex ante determine the implications of important corporate events such as spinoffs.