Conference paper

Authors list: Bannier, Christina E.; Wiemann, Markus

Publication year: 2011

URL: https://efmaefm.org/0efmameetings/efma%20annual%20meetings/2011-braga/papers/0095.pdf

Conference: European Financial Management Association Annual Meeting

Abstract: 

We examine the strategic use of rating-based versus accounting-based performance pricing in bank loan contracts. Analyzing a sample of US bank loans between 1993 and 2008, we find that banks tend to employ slowlyreacting ratings as performance measures for borrowers with expected performance improvements and quicker-reacting accounting ratios for firms with expected performance deteriorations. Interestingly, both borrower groups manage to improve their rating in the two years after the loan initiation, though the effect is much stronger for the former group than for the latter. Performance pricing hence appears to exert positive incentive effects, so that the threat of immediate punishment is rarely executed. An analysis of the asymmetry of the pricing grids supports this conclusion.

Harvard Citation style: Bannier, C. and Wiemann, M. (2011) Accounting-based versus rating-based performance pricing in bank loan contracts - Immediate punishment but gradual reward?, European Financial Management Association Annual Meeting, Braga, June 22-25, 2011. https://efmaefm.org/0efmameetings/efma%20annual%20meetings/2011-braga/papers/0095.pdf

APA Citation style: Bannier, C., & Wiemann, M. (2011, June 22-25, 2011). Accounting-based versus rating-based performance pricing in bank loan contracts - Immediate punishment but gradual reward?. European Financial Management Association Annual Meeting, Braga. https://efmaefm.org/0efmameetings/efma%20annual%20meetings/2011-braga/papers/0095.pdf