other entities and with similar information about the same entity for another period or another date’’ (FASB 2010).
Correspondingly, it is expected that comparability benefits financial statement users by helping them to better process
information at a reduced cost.
2
In this study, we examine whether accounting comparability affects the contracting features of
syndicated loans.
Recent academic studies (e.g., De Franco, Kothari, and Verdi 2011; Kim, Kraft, and Ryan 2013; Chen, Collins, Kravet,
and Mergenthaler 2015; Shane, Smith, and Zhang 2014) show evidence of the benefits of accounting comparability on capital
markets, including both equity and public debt markets. However, an important segment of the capital markets, the syndicated
loan market, has largely been overlooked in the literature on accounting comparability. By focusing on the syndicated loan
market, our study examines whether and how accounting comparability is associated with various features of syndicated loans,
including contractual terms (i.e., pricing and non-pricing terms, such as collateral requirements, loan maturity, and the
provision of financial covenants) and loan syndication duration and structure. Such an inquiry would reveal the specific
channels through which accounting information has important implications on the design of private debt contracts (Watts and
Zimmerman 1986; Ball 2001) beyond cost of capital.
The economic importance and unique features of the syndicated loan market motivate our focus on this particular market.
The syndicated loan market has grown quickly over the past several decades; more than 50 percent of corporate financing in the
U.S. is raised through syndicated lending (Sufi 2007).
3,4
As suggested in Bharath, J. Sunder, and S. Sunder (2008), bank
lenders can obtain information directly from borrowers and renegotiation is easier in the syndicated loan market and, thus,
financial reporting might play a limited role in this market. It is ex ante unclear that financial reporting quality, including
comparability, has an impact on the decisions of debt contracting. No prior study has investigated whether and how accounting
comparability affects debt contracting in the syndicated loan market. Further, the syndicated loan market involves different
types of lenders that face different levels of information asymmetry.
5
It is likely that accounting comparability is useful in
reducing the information asymmetry among different lenders, which potentially affects the contractual terms and syndication
process of the syndicated loans that cannot be studied in the public bond setting. Therefore, the importance and the uniqueness
of the syndicated loan market make it compelling to examine whether and how accounting comparability is relevant in reducing
information asymmetry in this market. Given that lenders (private or public) are primary users of general purpose financial
reporting, such an investigation also attends to the inquiry of the extent to which the objective of financial reporting may have
been attained.
6
We employ a sample of U.S. publicly listed firms that borrowed from the syndicated loan market during the period of
1992–2008. Using comparability measures developed by De Franco et al. (2011), we first show that comparability is negatively
associated with cost of debt (i.e., loan spread) after controlling for a series of factors determining loan spread. We then turn our
focus to non-pricing contractual terms. We document that, ceteris paribus, firms with higher comparability take loans with
longer maturity, and they are less likely to pledge collateral in loan contracts as compared to firms with lower comparability.
These findings are robust to the estimation of joint determination of pricing and non-pricing contractual terms. Overall, these
results suggest that comparability enhances lenders’ ability to better process financial statement information and monitor
borrowers and, thus, lenders are more willing to offer loans with more lenient terms, such as longer maturity and no collateral
requirements. We also find evidence that more comparable accounting information increases the likelihood of including
accounting-based performance pricing provisions in loan contracts.
Next, we examine the implications of comparability for loan syndication duration and loan syndicate structure. Additional
evidence shows that comparability is negatively associated with loan syndication duration and the ownership of loans retained
by lead lender(s), and positively associated with the number of participating lenders, including uninformed participating
lenders. These results suggest that comparable financial statement information helps mitigate information asymmetry between
2
The IASB’s endeavor to harmonize the accounting standards is largely viewed as aiming at improving the comparability of financial statements
globally, and has been shaped by the (im)balance of power of capital market participants and societal stakeholders of various interests (Botzem and
Quack 2009).
3
The total amount of loans provided through the syndicated market increased from $137 million in 1987 to over $1 trillion in 2007. Although the 2007–
2008 financial crisis caused a significant decline in loan volume for the syndicated loan market, total annual volume of syndicated loans was back to the
pre-crisis level in 2012, reaching about $1.5 trillion (Thomson Reuters 2013).
4
This type of lending is a hybrid of ‘‘ traditional bank loans and capital market instruments’’ (Lee and Mullineaux 2004) and has features of both
‘‘ relationship loans’’ and ‘‘ transaction loans’’ (Boot and Thakor 2000), in contrast to conventional public debt, which has diffused ownership structures
(Diamond 1991a; Amihud, Garbade, and Kahan 1999).
5
Specifically, in the syndicated loan market, while lead lenders have direct access to information, participant lenders can only obtain information from
public disclosure or information memos stripped of material sensitive information provided by lead lenders (Standard & Poor’s [S&P] 2006). We will
have a detailed discussion of this unique feature of this market in the ‘‘ Background and Hypotheses’’ section.
6
Both the FASB and IASB identify lenders as a primary user of financial reporting. For example, ‘‘ The objective of general purpose financial reporting
is to provide financial information ... to existing and potential investors, lenders, and other creditors ... in buying, selling, or holding equity and debt
instruments and providing or settling loans and other forms of credit’’ (IASB 2010, para. OB2).
278 Fang, Li, Xin, and Zhang
Accounting Horizons
Volume 30, Number 2, 2016