Jandik, Tomas y McCumber, William. Creditors Governance

Creditor Governance
Tomas Jandik 1 and William R. McCumber 2
October, 2018
Abstract
We provide evidence that large creditors exert a governing influence over corporate
borrowers outside of covenant (technical) violation and payment default states. We show
that, subsequent to syndicated loan origination, borrowers decrease capital
inefficiencies, increase investments in productive assets, and improve operating
performance relative to non-issuers. When firms are more opaque, syndicates are more
concentrated in that lead arrangers hold a greater percentage of loan shares. We present
evidence that creditor influence is increasing in the percentage of the deal retained by
the lead arranger. Equity holders benefit from creditor influence subsequent to loan
origination; cumulative abnormal stock returns around loan origination are positive and
significant. These findings are robust to technical violations and shareholder
governance. When creditor positions are more concentrated, creditor governance effects
are of the same sign and magnitude as those provided by concentrated equity positions.
JEL codes: G21, G32, G33, G34

Keywords: syndicated loan, corporate governance, creditor governance, operating
performance
1
Tomas Jandik, tjandik@walton.uark.edu, Professor of Finance and Dillard’s Chair in Corporate Finance, Sam M.
Walton College of Business, University of Arkansas, Fayetteville, AR. 1-479-575-4505.
2
William R. McCumber, mccumber@latech.edu, Assistant Professor and JPJ Investments Endowed Chair of
Finance, College of Business, Louisiana Tech University, Ruston, LA. 1-318-257-2389.
Electronic copy available at: https://ssrn.com/abstract=3209460

While the majority of studies in corporate governance focus on the ability of
shareholders to advise and monitor firms, a growing literature finds that creditors also
exert a governing force over corporate borrowers. This makes intuitive sense, in that
institutional creditors, like institutional shareholders, hold concentrated positions in
corporate securities in their portfolios. For example, Nini, Smith, and Sufi (2012) and
Becher, Griffin, and Nini (2017) find that creditors play an active role in borrower firm
governance subsequent to a technical violation of a loan covenant, and that creditor
governance results in improved operating and stock performance.
The market for corporate debt is considerably larger than the market for public equity.
According to the Thomas Reuters Loan Pricing Corporation, $2 trillion in syndicated
loans were issued in 2016, compared to less than $250 billion in net equity issuance.
Further, the number of firms issuing debt is a multiple of those issuing public equity.
Large creditors hold concentrated positions in borrower securities – loan shares – and
are therefore exposed to borrower idiosyncratic risk. Bank asset quality is of obvious
importance to bank management, shareholders, and regulators, and creditor
monitoring of borrowers is a routine part of portfolio risk mitigation and regulatory
compliance. Despite these facts, there is a dearth of empirical evidence that
institutional creditors exert a governing influence over borrower firms prior to a
covenant violation or payment default. Since the great majority of credit agreements
are not violated, it is important to better understand the governance role creditors play
in portfolio firms outside of violation states.
In this study, we provide evidence that large creditors exert a governing influence over
borrower firms outside of technical or payment default states. Utilizing the “quasi-
discontinuity” methodology of Roberts and Sufi (2009) and Nini, Smith, and Sufi
(2012) with a sample of 15,635 unique non-financial non-utility public U.S. firms from
1997-2016, we show that syndicated loan issuance is associated with a lower
probability of future distress. Loan issuance is predictive of shifts in corporate
financial and investment decisions away from value reducing policies and toward
value creating investments. Specifically, we find that issuing firms reduce cash
holdings, decrease acquisition activity, shareholder payouts, and capital expenditures,
and increase investments in productive assets. The effects of shifts in corporate
investment policy persist for at least three years subsequent to loan origination.
Theory predicts that when borrower firms are more opaque, lead arrangers must
retain a greater proportion of loan shares to clear the market. We quantify the
seriousness of information asymmetry present in a loan issue not via a general proxy
for borrower opacity, e.g. research and development expenses, but by the degree to
which the spread at origination deviates from what is expected on a risk-adjusted
basis. We find that when market-clearing spreads are significantly different than
expected spreads underwriters retain a greater proportion of loan shares, and that this
is the case both when clearing spreads are higher and lower than expected.
Since more concentrated holdings expose creditors to greater borrower idiosyncratic
risk, governance efforts should be increasing in the proportion of loan shares retained
by the underwriter. We present evidence that creditor influence is increasing in lead
exposure to loan shares. Decreases in cash, acquisition activity, shareholder payouts,

and salary expenses are more pronounced when creditors hold more concentrated
positions. Heightened creditor governance is associated with increasing investment in
inventories, capital expenditures, and property, plant, and equipment. Further, firm
profitability and cash flows from operations are higher when creditor positions are
more concentrated.
Since Nini, Smith, and Sufi (2012) find that creditor governance drives demonstrable
changes in firm policies and performance after a covenant violation, we re-examine
whether our findings are driven by loans that are likely renegotiated agreements
following a technical default. We provide support of the authors’ findings that creditor
governance post violation is a strong determinant of changes in firm policy and
performance. We also find that our previous results hold, even when creditor
governance before a covenant violation is different than post violation. For example,
loan origination is a strong determinant of increased investments in property, plant,
and equipment, but creditor governance post violation is associated with decreases in
PPE relative to firm assets.
To consider the magnitude of creditor governance relative to shareholder governance,
we compare the governance effects of large institutional creditors to large institutional
shareholders. We find the presence of a large institutional stakeholder, whether
creditor or shareholder, is a strong determinant of changes in firm policies and
performance; coefficients share the same sign and are of comparable economic and
statistical significance. Finally, we find that shareholders value creditor governance.
Cumulative abnormal stock returns around loan issuance are positive and
economically and statistically significant.
The rest of this article proceeds as follows. The next section develops the motivation of
this study and discusses related literature. Section 2 discusses sample data and
summary statistics. Section 3 relates loan issuance to the frequency of bankruptcy
filings. Section 4 examines syndicate structure. Section 5 discusses creditor
governance in relation to changes in firm policies and performance. Section 6
examines the stock market reaction to loan origination. Section 7 compares creditor
governance pre and post covenant violation and to shareholder governance. Section 8
concludes.
1. Related Literature
A traditional view of creditor governance is that creditors are largely passive until a
borrower enters a state of payment default (Townsend, 1979; Gale and Hellwig, 1985;
Hart and Moore, 1998). A more recent literature finds that creditors play a disciplining
role in borrower governance following a technical violation of one or more covenants
(Chava and Roberts, 2008; Nini, Smith, and Sufi, 2012; Becher, Griffin, and Nini,
2017).
There is no a priori reason to believe that creditors do not exert a governing force over
borrower firms prior to a violation or default, however. There is a large literature on

shareholder governance of firms; 3 to our knowledge no study claims that institutional
shareholders are passive investors prior to some negative event, though several papers
demonstrate that shareholder activism is heightened when firms underperform or
institutional sales of firm shares is increasing (Bharath, Jayaraman, and Nager, 2013;
Aggarwal, Saffi, and Sturgess, 2015; McCahery, Saunter, and Starks, 2016).
This study is closest to Nini, Smith, and Sufi (2012), who find that creditors use the
control rights granted via technical violation of credit agreements to renegotiate loans
and exert a governing force over borrowing firms. The authors compare violating to
non-violating firms to document that creditor intervention is violating firm policies
results in sharp reversals of previously weakening firm financials and performance.
Creditor intervention is associated with increased liquidity, decreases in payouts,
capital expenditures, and acquisition activity, and asset shrinkage via sales and
disposals four quarters from a technical default. Post violation, the authors report that
violating firms are no more likely than non-violating firms to leave the sample via
distressed exit, and that creditor intervention is valued by shareholders. While Nini,
Smith, and Sufi (2012) focus on dramatic creditor intervention around violations, we
investigate whether the issuance of a loan is in and of itself predictive of creditor
influenced changes in firm investment policies and performance. We compare issuer to
non-issuer firms, and examine changes in policies and performance over a three year
period to investigate both the impact and persistence of creditor governance.
With the maturation of the primary and secondary markets for syndicated loan
shares, syndicated loan issuance has become closer to that of equity issuance with
regard to the origination process. 4 An issuer (borrower) contracts with an underwriter
(lead arranger) to underwrite a loan package. The lead arranger performs due diligence
and the contracting parties come to terms with regard to the amount financed, the
duration of the loan, loan purpose, covenant requirements, and an acceptable range
for the spread at issue. The underwriter prepares offering memoranda and publicizes
the issue. Potential participant (non-lead) creditors, including, but not limited to,
banks, collateralized debt obligations (CLOs), hedge funds, leveraged/specialty finance
companies, mutual funds, insurance companies, pension funds, and other
institutional investors have the opportunity to participate in meetings with executives
from the borrowing firm, hosted by the lead arranger. Market clearing spreads and
syndicate structures are endogenously determined as participants purchase loan
shares and agree to proportionally finance the issue. Shares unpurchased by
participants are retained by lead arrangers who also are contracted to administer cash
flows and monitor the borrower ex post.
Because lead arrangers retain only a portion of loan shares in syndication there is
both a moral hazard problem, since leads have less incentive to monitor the borrower
ex post, and an adverse selection problem, as leads have incentives to sell riskier
loans. Since participant lenders partially rely upon lead underwriters for thorough due
3
For a thorough review of the research in corporate governance see Shleifer and Vishny (1997), Bebchuck and
Weisbach (2010), or OUP’s The History of Corporate Governance (2013).
4
For a thorough discussion of the syndicated loan market and the origination process written by practitioners for
market participants see Taylor and Sansone (2007).

diligence on borrowers ex ante and more fully rely upon leads for monitoring ex post, it
is well documented theoretically and empirically that syndicates are more
concentrated when information asymmetries are more severe. Sufi (2007) finds that
lead arrangers hold a greater proportion of loan shares when borrowers are more
opaque, and Ivashina (2009) finds an information asymmetry premium charged to
borrowers that is increasing in the share of the loan retained by the lead.
Theory suggests that lead incentive to monitor ex post is increasing in the proportion
of the loan retained by the lead(s), as the lead is more exposed to idiosyncratic
borrower risk in the bank’s portfolio. However, to date there is an absence of empirical
evidence that leads’ monitoring is increasing in the proportion of a loan retained by
the lead arranger. This may be partially explained by legal limitations on creditor
intervention in borrower firm decision making (Roe and Venezze, 2013) wherein
“pernicious” control of borrower firms exposes creditors to liability in the event of
borrower distress. Contractually and non-contractually, creditors have significant
access to borrower firm management and may exert some control over firm decision
making (Daniels and Triantis, 1995). Even in the absence of direct control, however,
given increased liquidity of loan shares in the secondary market creditors may
influence portfolio firms’ behavior similarly to equity blockholders. Edmans (2009)
finds that blockholders exert governance via the threat of exit, inducing managers to
invest in more efficient, longer term projects, even if such projects dampen short term
profits. Edmans (2009) presents evidence that blockholders add value to firms even
when they have no direct control over firm management or decisions. We present
evidence that like equity blockholders, “creditor blockholders” influence managerial
decision making away from value destroying investments and toward productive
assets.
2. Data and Summary Statistics

There are two primary data sources for our analyses and two secondary resources. We
first construct a firm-quarter dataset of all non-financial and non-utility Compustat
firms from the first quarter of 1996 through the fourth quarter of 2016. Secondly, we
compile a dataset of all U.S. firms issuing syndicated, as opposed to single-lender,
loans from the first quarter of 1997 through the fourth quarter of 2016 from Dealscan.
We also require bankruptcy and stock return data; these are collected from
Bankruptcy.com and the Center for Research in Security Prices (CRSP), respectively.
The resulting database includes 305,680 firm-quarter observations, 15,635 unique
firms and 3,775 unique borrowers issuing 19,375 facilities within 13,673 syndicated
loan packages from 1997 to 2016.
2.1. Data and variable construction
We start in 1996 with Compustat data because we create quarterly rolling annual
measures of firm financial data lagged by one quarter. If a loan is issued in the first
quarter of 1997 we therefore have annual measures as of the end of the fourth
quarter, 1996, as would underwriting and participant (non-underwriting) creditors. To
minimize the effect of outliers and data errors we two-tail winsorize firm variables at

the 1% level (each tail at 0.5%) and/or take the natural log, e.g. firm assets and sales
figures, in regressions to follow.
From Dealscan we collect all loans issued to U.S. borrowers from 1987 to 2016. We
discard loans to financial and utility firms. We discard private loans, as we require
firm financials from Compustat for our analyses. We further discard any loans that
are single-lender loans, as we want to focus on syndications, and any loans that are
shorter than 13 months in duration. Short term loans are discarded because these are
“revolving” loans requiring a thorough and frequent creditor review by construction,
and also because we investigate changes in firm variables one, two, and three years
from loan origination. Loan data are comprehensive, inclusive of spread, maturity
(duration), deal size, covenant information, and whether the facility is backed by
collateral. We create indicator variables for loan characteristics. These include
Restricted, equal to one if shareholder payouts are restricted, Secured, equal to one if
the loan is collateralized by specific assets, Revolving, equal to one if the loan is a
revolving credit greater than 13 months in duration, and Previous, equal to one if the
borrowing firm had a previous lending relationship with any creditor in the syndicate
from 1987 forward. We also create a Covenant index count variable giving one point for
each investment, performance, liquidity, or sweep covenant present in the credit
agreement; the range of the index is from zero to five in our sample.
2.2. Summary statistics
Panel A of table 1 reports summary statistics of firm variables inclusive of all
Compustat firms as described above. There is considerable heterogeneity in the
sample. The median firm reports assets of $150 million, $130 million in sales, has a
debt to assets ratio of 0.19, and a market to book ratio of 1.12. The sample includes
some very large firms, however. The mean firm has $2.1 billion in assets and $1.8
billion in sales. The mean market to book ratio is 4.32. Physical assets comprise 25%
of book assets at the means.
Panel B of table 1 reports summary statistics of all facilities issued to public firms. The
typical loan is a five year revolving $300 million facility issued with an all-in spread of
200 basis points over LIBOR. The loan is secured by collateral, with restrictions
against increasing shareholder payouts. At the means, facilities are 56 month $680
million facilities with 1-2 covenants in addition to payout restrictions and collateral
requirements. 92% of facilities are issued by firms that have had a previous lending
relationship with at least one of the creditors in the syndicate.
3. Loan Origination and Default Frequency

Preliminary evidence of creditor governance can be found in a comparison of the
frequency of bankruptcy filings for firms issuing syndicated loans and those not
issuing loans. Table 2 reports the unconditional probability that a firm files for
bankruptcy within four, eight, and twelve quarters for all Compustat firms from 1997-
2016. The frequency of filing for bankruptcy within four quarters is 3.83% for non-
issuing firms compared to 0.67% for issuing firms, with a t-stat for a statistical

difference in means of 22.07. Unsurprisingly, the probability of filing bankruptcy is
increasing in time for both issuing and non-issuing firms, though the difference
remains economically and statistically significant. The probability that the firm files for
bankruptcy at any time within twelve quarters is 6.78% for non-issuing and 1.34% for
issuing firms. A t-test for a statistical difference between issuer and non-issuer
probabilities reports a t-statistic of 28.97.
Table 3 presents further evidence that creditors monitor borrowers subsequent to loan
origination and prior to default states. Controlling for firm characteristics that are also
related to the probability that a firm files for bankruptcy, we create an indicator
variable equal to one if the firm issues a syndicated loan that quarter. Firm variables
are quarterly rolling annual measures, lagged by one quarter relative to loan issuance,
and include firm size, cash flow, leverage, and tangibility measures. We also include
whether the firm has a long term debt rating of investment grade, or has no long term
credit rating. The dependent variable is an indicator equal to one if a firm files for
bankruptcy protection at any time within one, two, and three years from the quarter of
observation. Utilizing a probit specification and controlling for industry and time
effects, clustering robust errors by firm, we observe that the issuance of a syndicated
loan is negative and statistically significant at better than the one percent level. The
economic impact of loan issuance on the likelihood of bankruptcy is approximately
equal to that of the firm having an investment grade long term credit rating.
4. Syndicate Structure
In order to empirically investigate whether the incentive to monitor is matched by
increased monitoring we first need to document a relationship between information
asymmetry and syndicate structure. To estimate the degree of information asymmetry
between borrowers and lenders we do not rely upon common proxies for firm opacity,
e.g. accruals or R&D expense, but instead measure the difference between observable
spreads – the spread at issue – and an expected spread given observable loan and
borrower characteristics. Thus the difference between the observed spread and a
typical spread must reflect an amount of soft (unobservable) borrower information that
simultaneously affects both clearing spreads and syndicate structure.
Our sample includes 19,375 facilities issued to 3,775 unique borrowers. We regress
facility spreads on loan and borrower characteristics to derive point estimates of
observable characteristics on the all-in facility spread in basis points over LIBOR. We
calculate quarterly rolling annual financial variables lagged one quarter prior to facility
issuance, finding 3,875 facilities with one or more quarterly Compustat observations
missing. In order to retain these observations, we first regress facility spreads on loan
characteristics inclusive of deal size, maturity, the number of covenant restrictions,
restrictions on dividends, collateral requirements, the contractual frequency of
thorough review (revolving facilities), and whether the issuer has a previous borrowing
relationship with any creditor in the syndicate. We also estimate coefficients for
industry, year, and loan purpose. For 15,500 facilities we have all required
observations to compute quarterly rolling annual firm financial characteristics

inclusive of average annual firm assets, operating cash flow to assets, leverage
measured as average annual total debt to assets, and tangibility measured as net
property, plant, and equipment to firm assets. Point estimates of the determinants of
facility spreads are reported in table 4. Unsurprisingly, spreads are increasing in
borrower leverage. Spreads are also increasing in collateral requirements and covenant
restrictions, as facilities requiring greater explicit creditor protection are riskier. Larger
firms with greater operational cash flows pay lower spreads. Finally, spreads are
decreasing in previous lending relationships between creditors and borrowers, as
borrowers have greater reputational capital, and are lower for revolving facilities, since
there is a formal review and renewal process in place ex ante.
We multiply the point estimates and firm-loan observations at the most granular level
to generate expected spreads given firm-loan characteristics. The expected spread for
any facility is therefore representative of a “typical” spread on a risk-adjusted basis.
We then compare the observed spread at issue to the expected spread to estimate the
degree to which information asymmetries between borrowers and lenders moved
spreads moved away from expected spreads to clear the market. Ranking the
difference between observed and expected spreads the sample is divided into quartiles.
The top quartile (top 25% in observed minus expected spread) represents those
facilities wherein the spreads were higher than expected while the bottom quartile
include facilities with spreads that were considerably lower than expected.
Intuitively, if soft information partially reveals greater than typical borrower
idiosyncratic risk and/or information asymmetries are more severe, spreads will
adjust upwards to compensate creditors for increased risk. Further, in such a case the
resultant syndicate structure should be more concentrated, with leads retaining a
greater proportion of the loan, as fewer non-lead creditors participate and/or
participant lenders purchase fewer loan shares. The top panel of table 5 compares
syndicate structures for typically priced facilities to those with higher than expected
spreads. High spread facilities have smaller syndicates with fewer participants. Most
importantly, the percentage of loan shares retained by the lead arranger(s) is higher
when clearing spreads are higher than expected; leads retain an additional 7.64% of
loan shares at the mean, corresponding to an additional $22.92 million of lead
exposure to an opaque borrower issuing a median $300 million facility. All differences
in means for syndicate structure variables are significant at better than the one
percent level.
By construction, the lowest quartile of facilities are those wherein clearing spreads are
lower than expected on a risk-adjusted basis. For spreads to be lower than expected a
reasonable conjecture is that soft information revealed that the borrower was stronger
than other borrowers, and thus such borrower-loans are less risky than other
borrower-loans with similar observable characteristics. In such a case one should
expect syndicate structure to not be noticeably different than syndicates of “typical”
deals since borrower-loan risk (observed and unobserved) is appropriately priced. It is
also possible that “safe” borrowers are firms that are not taking appropriate risks, for
example, firms that are underinvesting in value-creating projects. The latter case
could be a source of information asymmetry between borrowers and lenders, since

lenders may not be fully aware of all possible opportunity sets for borrower firms. The
bottom panel of table 5 compares syndicate structures of typical deals to those with
lower than expected spreads. In lower priced deals, syndicates are smaller overall,
though the difference in the number of participants is not significant. Interestingly,
however, the lead again retains a significantly larger proportion of loan shares when
spreads are lower than expected; participants are purchasing fewer shares. At the
mean, leads retain an additional 3.97% of loan shares when spreads are lower than
expected, representing an additional $11.91 million in lead exposure in a median $300
million facility. Differences are again statistically significant at better than the one
percent level.
We find that syndicate structures are more concentrated, specifically with regard to
the proportion of loan shares retained by the lead underwriter, when information
asymmetries are greater. Importantly, this is the case for both higher and lower priced
deals. Underwriters therefore have increased incentive to monitor borrowers in higher
and lower priced facilities, since in each case the underwriter has greater exposure to
idiosyncratic borrower risk.
5. Creditor Influence
Creditors are sophisticated investors with concentrated positions in borrower
securities. If, as Shleifer and Vishny (1997) argue, “corporate governance deals with
the ways in which the suppliers of finance to corporations assure themselves of getting
a return on their investment”, then lead arrangers possess both the ability and the
motive to advise and monitor the firms in their portfolios, in other words, engage in
corporate governance. Lead arrangers are in a unique position to evaluate firm
investment policies, since the underwriting process requires a thorough review of
current firm policies, projects, and opportunities. No other stakeholder, with the
possible exception of hedge fund (or similar) activist shareholders, have similar
expertise, access to senior management, and firm private information as do
underwriting creditors. We therefore measure changes in firm investment choices and
operating performance one, two, and three years from loan origination to gauge the
degree to which loan origination, and therefore creditor influence, is a determinant of
said changes. We hypothesize that creditors are likely to steer firms away from
inefficient investments toward more productive activity. We further expect to see an
impact on operating performance wrought by any changes in investment activity.
In the regressions to follow we control for firm financials, industry and time fixed
effects, and the last four quarters of the dependent variables relative to time 0. We
include all firm-quarter observations from Compustat for which we have all required
control variables. We create an indicator variable Syndicated loan equal to one if the
firm issued a syndicated loan that quarter. We also create indictor variables High
(Low) spread equal to one if the originated loan has a spread that is in the highest
(lowest) quartile of the difference between the spread at issue and the expected spread
from table 4. High (Low) spread variables identify those firm-deals in which the lead

arrangers have more concentrated positions and are therefore exposed to greater
idiosyncratic borrower risk.
5.1 Inefficient investments
From Jensen (1986) forward there is a large literature on the agency cost of cash.
Similarly, there is a large literature documenting that acquisitions are often value-
destroying. Both cash holdings and acquisition activity are therefore potentially
inefficient. Shareholder payouts may also be inefficient from a creditor perspective,
even if welcomed by shareholders, especially if firms have profitable investment
opportunities. Firms with higher cash holdings, greater acquisition activity, and more
shareholder payouts are more likely to suffer from investment inefficiencies.
Table 6 reports results of regressions of changes in firm cash holdings, acquisition
activity, and shareholder payouts relative to firm assets one, two, and three years from
time 0. We control for current year (past four quarters, rolling) average cash to assets,
total acquisition activity to average assets, and total shareholder payouts, inclusive of
dividend payments and share repurchases, to average assets. Subsequent to loan
origination there is a statistically and economically significant decrease in cash
holdings and acquisition activity for borrower firms. Further, these changes appear to
be persistent in that decreases in cash and acquisitions occur in the first four quarters
and persist for at least three years after loan origination. Where creditors are exposed
to greater idiosyncratic borrower risk – high and low spread deals – we see even
greater reductions in cash and acquisition activity. While high spread borrowers show
marginally significant reductions in the first four quarters after loan issuance, it is the
low-spread borrowers where additional reductions in cash and acquisition activities
are significant at better than the one percent level. Finally, though shareholder
payouts are “sticky” in that dividend reductions are unwelcomed by shareholders
(though not contractual obligations), there is a significant reduction in shareholder
payouts for low-spread firms in the first four quarters. Reductions in cash, acquisition
activity, and shareholder payouts for low-spread firms are all consistent with the
argument that, although “safe” from a default probability standpoint, low-spread firms
are those with fewer identified investment opportunities and/or a relative inability or
unwillingness to invest in appropriately risky projects.
5.2 Productive investment
Table 6 presents evidence that creditors discourage inefficient capital allocations in
borrower firms. It may also be possible, then, that creditor advising and monitoring
activities steer capital toward more productive projects. To investigate this possibility,
we calculate changes in firm working capital, capital expenditures, and property,
plant, and equipment, all relative to assets, one, two, and three years from time 0.
Table 7 reports results of regressions on changes in working capital, capital
expenditures, and PPE on firm, industry, and time controls. We control for current
year (past four quarters, rolling) dependent variables. The variables of interest again
are indicator variables for Syndicated loan and High (Low) spread deals.
With regard to working capital, borrower firms reduce working capital relative to non-
issuing firms; the coefficient on the indicator for loan issuance is negative and
10

significant at better than the one percent level. These effects are again persistent, with
significant decreases in working capital at least three years from origination. This is
consistent with the evidence that borrower firms reduce cash positions relative to
assets presented in table 6, as cash is an element of working capital. However, both
high and low spread firms show significant and persistent increases in investments in
working capital. Coupled with the significant decrease in cash presented in table 6, an
increase in working capital for high and low spread firms is strongly suggestive that
the investment mix of working capital is changing, that is, decreasing in cash and
increasing in inventories and goods/services-in-process.
Firm capital expenditures and investments in property, plant, and equipment follow a
similar pattern. Borrower capital expenditures decrease overall compared to non-
borrower firms, and these changes are persistent for at least three years after loan
issuance. Borrower firms are increasing investments in productive assets, property,
plant, and equipment, however, relative to non-borrower firms. Coefficients on the
syndicated loan dummy are significant at better than the one percent level in all cases.
Again, consistent with increased creditor attention paid to firms to which creditors are
more exposed to borrower risk, we see a pattern of increasing investments in
productive assets. High spread borrowers show significant increases in capital
expenditures and PPE investments in the first four quarters after loan issuance. Low
spread issuers show a more dramatic increase in capital expenditures that persist for
at least three years, and an increase in investment in productive assets three years
from loan issuance.
5.3 Operating performance
We next investigate whether creditor/loan-related changes in capital investments
translate to operational performance. We calculate changes in firm profitability as
changes in net income to assets (ROA), cash flow from operations relative to assets,
and selling, general, and administrative expenses (SGA) relative to assets one, two,
and three years from time 0. As before, we control for the past four quarters of our
profitability measures. 5 Table 8 reports results of regressions of changes in firm
operating performance. Syndicated loan issuance is shown to be a negative
determinant of firm performance proxied by the return on assets and operations cash
flows to assets from one to three years after the quarter of origination. These findings
are consistent with the shift in capital investments to more productive assets as
reported in tables 6 and 7, however; longer term investments, especially in property,
plant, and equipment, are likely to have a payoff horizon longer than three years.
Most importantly, table 8 reports that for high and low spread deals, creditor
governance is a positive and significant determinant of both ROA and cash flow from
operations. For high spread borrowers, changes in ROA and cash flows are significant
at three and two (and three) years, respectively. For low spread borrowers, creditor
5
We report regressions inclusive of the average ROA in the last four quarters on a quarterly rolling annual basis to
control for prior year firm profitability. We do not include cash flow from operations to assets as a control variable
because the correlation between cash flows and net income to assets is 0.92. The results are unsurprisingly
unchanged if we exclude ROA in favor of cash flows as a control variable in the model specification.
11

governance manifests more quickly in improving firm profitability and cash flows; Low
spread is positive and significant one, two, and three years from issuance at better
than the one percent level. This is again supportive of the argument that creditors are
able to steer under-invested firms to appropriately risky projects. Finally, creditor
monitoring is visible with regard to salary and administrative expenses. While the
issuance of a loan does not appear to have a material effect on borrower SGA, the
coefficients on High and Low spread are negative and significant, suggesting that
when creditors have greater exposure to idiosyncratic risk, compensation and other
operational expenses decrease and/or are altered to differently incentivize executives
of portfolio firms.
6. Market Reaction
If creditor advice and monitoring adds value to borrowing firms, share prices should
adjust upward to reflect the additional value of creditor influence. Figure 1 illustrates
the cumulative abnormal return for borrower firm stocks in a -3 to +3 event window
around loan origination utilizing a Fama French (1993) three factor market model.
Figure 2 illustrates the cumulative abnormal return utilizing an adjusted market
model. Both figures show a significant upward trend in borrowing firm stock prices,
with the Fama French model showing a defined “kink” at day 0, when the loan is
initiated.
Table 9 reports results of event studies around loan origination using the Fama
French (1993) 3-factor model and the market adjusted model to calculate the
cumulative abnormal return in a -3 to +3 event window, with day 0 at loan initiation.
The estimation period is 150 days, from -200 days to -51 days, with at least 70 days of
trading data required to estimate the coefficients. The Fama French 3 factor model
reports an average CAR of 0.47%, adding $14.85 million to the mean market
capitalization of borrower firms. The CAR is statistically significant, with a t-stat of
4.52. We calculate the adjusted market model expected returns using the CRSP value
weighted market return, inclusive of all NYSE, NASDAQ, and AMEX stocks. The CAR
utilizing the adjusted market model is 0.81%, and is statistically significant with a t-
stat of 7.95, adding $27.49 million to the mean market capitalization of borrowing
firms.
7. Robustness
7.1 Covenant violations
Nini, Smith, and Sufi (2012) and Becher, Griffin, and Nini (2017) provide evidence that
creditors play an active role in corporate governance following a technical violation of a
loan covenant. Violations occur outside of payment default states but signal a
deterioration of firm financials and/or performance. Creditors utilize control rights
triggered by covenant violations to renegotiate loan deals, prompting changes in
borrower investment and financing behavior. Nini, Smith, and Sufi (2012) report that
12

in any given year between 10-20% of firms are in violation of a covenant in a credit
agreement. In order to investigate whether the findings above are driven by creditor
governance in the wake of covenant violations we match our sample to the covenant
violations database in the data appendix provided by the authors. 6 Matching to our
sample, we find violations to represent 6.45% of firm-quarter-facility observations. We
then rerun our tests of changes in firm investments and performance presented in
tables 6 – 8 inclusive of an indicator variable equal to one if the firm reported being in
violation of one or more covenants that quarter.
Table 10 reports results of regressions of changes in firm cash, acquisition activity,
and shareholder payouts one, two, and three years from time 0. The variables of
interest remain Syndicated loan and High/Low spread, but we include the indicator
Violation to identify those firms reporting covenant violations and/or facilities that are
likely to be the result of credit agreements renegotiated with creditors subsequent to a
violation. In strong support of Nini, Smith, and Sufi (2012) and Becher, Griffin, and
Nini (2017) we find that firms decrease cash holdings, acquisition activity, and
shareholder payouts following a covenant violation. Further, we provide additional
support in that Nini, Smith, and Sufi (2012) investigate changes four quarters from
violation whereas we report that changes in firm investment policy is persistent post
violation; coefficients on Violation are negative, significant, and persistent two and
sometimes three years after a violation quarter.
Tables 11 and 12 report results of changes in firm productive assets and performance,
respectively, inclusive of all previous variables and Violation. We find that post
violation, firms increase investments in inventories and capital expenditures while,
again in support of Nini, Smith, and Sufi (2012), sharply lowering property, plant, and
equipment. We also find that creditor governance post violation improves firm
performance and decreases salaries and general expenses, and that these effects are
persistent.
Most importantly for our purposes, the results reported in tables 6 – 8 remain
statistically and economically significant for Syndicated loan and High (Low) spread
variables. This is unsurprising, as we find the correlation between high (low) spread
facilities and violations to be 0.015(-0.010). There is therefore no correlation between
opacity and subsequent technical violation. Borrower opacity is not predictive of firm
performance, and/or increased creditor monitoring of more opaque helps prevent
deterioration in borrower financials that lead to a technical violation. We conclude
that, controlling for more dramatic creditor governance resultant of covenant
violations, creditors influence borrower firm investment behavior and performance
outside of violation states.
7.2 Shareholder governance
There is a large literature that considers corporate governance as provided by large
institutional shareholders. These shareholders are sophisticated investors with
6
We thank the authors for publicly providing the database of covenant violations. The appendix may be found at
https://faculty.comm.virginia.edu/dcs8f/CreditorGovernance_NSS_20101116_Appendix.pdf and the data are
available at http://faculty.chicagobooth.edu/amir.sufi/CSTATSEC_NSS_20090701.dta.
13

concentrated, semi-illiquid (due to market frictions) positions in firm securities, and
therefore have both the ability and incentive to monitor and advise executives of
portfolio firms. As we rely upon the same argument for governance from large
creditors, we control for the possibility that our findings are driven by institutional
shareholder governance.7 We collect institutional ownership data from Thomson
Reuters to create an indicator variable Blockholder equal to one if the firm has at least
one institutional shareholder with a 5% or greater position in firm shares in that
quarter. We find that a blockholder is present in 30.42% of firm-quarter observations.
We again rerun our tests of changes in firm investments and performance presented in
tables 6 – 8 inclusive of Blockholder. As a 5% equity holding corresponds to a $25.5
million portfolio position in a median firm, we expect to find shareholder governance to
be a determinant of changes in firm investment behavior and performance.
While we find no significant relationship between the presence of large institutional
shareholders and changes in firm cash and acquisition activity, we do report that
blockholders increase investments in productive assets and improve firm performance.
Table 13 reports results of regressions of changes in firm working capital, capital
expenditures, and property, plant and equipment one, two, and three years from time
0. Blockholder is a positive and statistically significant determinant of investments in
operational capacity across all time spans. Investments are increasing and persistent.
Table 14 reports results of regressions of changes in firm operating performance. The
presence of a large institutional shareholder is shown to be a negative determinant of
changes in salaries and administrative expenses and a positive determinant of
changes in net income and cash flow from operations relative to assets. Blockholder is
statistically significant at the 5% or 1% level in all specifications. Most importantly for
our purposes, variables of creditor governance, Syndicated loan and High/Low spread,
retain their significance. Further, we find that when creditor positions are more
concentrated, as in high and low spread deals, creditor governance coefficients share
the same sign and magnitude as those of concentrated shareholder positions. We thus
conclude that creditor and shareholder governance are compliments and of
comparable import.
8. Conclusion
This study documents that large creditors exert a governing influence over borrower
firms prior to a technical violation or payment default of a private credit agreement.
We find that borrower firms reduce cash holdings, capital expenditures, acquisition
7
We also control for shareholder governance by calculating the Entrenchment Index of Bebchuck, Cohen, and
Ferrell (2009) to investigate whether restrictions on shareholder power (entrenchment of management) is predictive
of changes in firm investment behavior and performance. Unfortunately, the data on shareholder restrictions is
limited, and including the Index in our regressions results in a loss of 84% or more of our observations. In support of
Bebchuck et al. (2009) we find the Index to be associated with higher cash positions, salaries expenses, and lower
performance. Effects are only marginally significant or insignificant, however, as we are measuring changes in firm
behaviors and performance and firm governance metrics are typically persistent. Our measures of creditor
governance largely retain their significance even with a much smaller sample. We do not report results herein for
parsimony.
14

activity, shareholder payouts, and salaries and general expenses compared to non-
issuing firms. We find that issuing firms increase investments productive assets,
inclusive of inventories, works in progress, and property, plant, and equipment. We
also document that issuing firms are less likely to declare bankruptcy, as firms
decrease value destroying activities in favor of investments in profitable projects. When
borrowers are more opaque, underwriting banks retain a greater proportion of loan
shares. In support of theory that more concentrated positions incentivize greater
monitoring efforts, we report that more concentrated creditor holdings are associated
with additional improvements in firm investment policies and profitability. Finally, we
document that shareholders value creditor governance as cumulative abnormal stock
returns around loan issuance are positive and significant. The results are not driven
by covenant violations. Creditor governance is shown to be a complement to that
provided by large institutional shareholders.
15

References
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investors in voting: Evidence from the securities lending market, Journal of Finance
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Bebchuck, Lucian A., and Michael S. Weisbach, 2010, The state of corporate
governance research, Review of Financial Studies 23: 939-961.
Becher, David A., Griffin, Thomas P., and Greg Nini, 2017, Congruence in governance:
Evidence from creditor monitoring of corporate acquisitions, Drexel University working
paper.
Bharath, Sreedhar T., Jayaraman, Sudarshan, and Venky Nagar, 2013, Exit as
Governance: An empirical analysis, Journal of Finance 68: 2515-2547.
Chava, Sudheer, and Michael R. Roberts, 2008, How does financing impact
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corporate governance, California Law Review 83: 1073-1113.
Alex Edmans, 2009, Blockholder trading, market efficiency, and managerial myopia,
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Gale, Douglas, and Martin Hellwig, 1985, Incentive-compatible debt contracts: The
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Hart, Oliver, and John Moore, 1998, Default and renegotiation: A dynamic model of
debt, Quarterly Journal of Economics 113: 1-41.
Victoria Ivashina, 2009, Asymmetric information effects on loan spreads, Journal of
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McCahery, Joseph A., Saunter, Zacharias, and Laura T. Starks, 2016, Behind the
scenes: The corporate governance preferences of institutional investors, Journal of
Finance 71: 2905-2932.
Nini, Greg, Smith, David C., and Amir Sufi, 2012, Creditor control rights, corporate
governance, and firm value, Review of Financial Studies 25: 1713-1761.
Roberts, Michael R., and Amir Sufi, 2009, Control rights and capital structure: An
empirical investigation, Journal of Finance 54: 1657-1695.
Roe, Mark J., and Frederico Cenzi Venezze, 2013, A capital market, corporate law
approach to creditor conduct, Michigan Law Review 112: 59-109.
Shleifer, Andrei, and Robert W. Vishny, 1997, A survey of corporate governance,
Journal of Finance 52: 737-783.
Amir Sufi, 2007, Information asymmetry and financing arrangement: Evidence from
syndicated loans, Journal of Finance 62: 629-668.
16

Taylor, Allison, and Alicia Sansone, 2007, The handbook of loan syndications and
trading, McGraw Hill, New York.
Robert M. Townsend, 1979, Optimal contracts and competitive markets with costly
state verification, Journal of Economic Theory 20: 265-293.
17

Figure 1. Cumulative abnormal returns, Fama-French 3 factor model
This figure illustrates a -3 to +3 window cumulative abnormal stock return around
syndicated loan origination, with the loan active date at day 0. The model uses a
Fama-French three factor model to adjust returns. Total mean cumulative abnormal
return is 0.47%, with a t-stat of 4.52.
18

Figure 2. Cumulative abnormal returns, market model
This figure illustrates a -3 to +3 window cumulative abnormal stock return around
syndicated loan origination, with the loan active date at day 0. The model uses a
market model to adjust returns. Total mean cumulative abnormal return is 0.81%,
with a t-stat of 7.95.
19

Table 1. Summary statistics of loan facilities and sample firms
Panel A reports summary statistics of 19,375 facilities in 13,673 syndicated loans to
3,775 issuing firms, 1997-2016. Panel A reports quarterly rolling annual (last four
quarters) summary statistics of 15,635 sample firms. Sales and Assets are reported in
USD, millions. Leverage, Tangibility, and Market to book are total debt (including
current), property, plant and equipment (PPE), and market capitalization divided by
the book value of assets, respectively. Panel B reports summary statistics of loan
characteristics. Spread is the facility spread in basis points over LIBOR. Maturity is
loan duration in months. Covenant index is an index that counts one point for each
investment, performance, liquidity, or sweep covenant present in the credit agreement;
the max in the sample is 5. Restricted is an indictor equal to one if the agreement has
a material (dividend) restriction. Secured is an indicator equal to one if the loan is
collateralized by firm assets. Revolving is an indicator equal to one if the loan is a
“revolving” facility wherein the loan is re-evaluated each year. Previous is an indictor
equal to one if the borrower has a previous lending relationship with any lead or
participant lender in the syndicate from 1986 forward.
A: All firms Obs. Mean Std. dev. 25th Median 75th

Sales 305,676 1,802.60 5,509.85 15.79 130.39 808.49
Assets 305,677 2,107.59 6,398.97 23.94 155.09 906.10
Leverage 305,678 0.34 0.65 0.03 0.19 0.39
Tangibility 305,679 0.25 0.24 0.06 0.17 0.37
Market to book 305,680 4.32 17.74 0.58 1.12 2.33
B: Facilities Obs. Mean Std. dev. 25th Median 75th

Spread 19,375 216.22 135.27 125.00 200.00 275.00
Maturity 19,375 55.75 17.64 42.00 60.00 60.00
Covenant index 19,375 1.47 1.91 0.00 0.00 3.00
Deal size, USD millions 19,375 679.63 1,411.27 125.00 300.00 701.10
Restricted 19,375 0.63 0.48 0.00 1.00 1.00
Secured 19,375 0.63 0.48 0.00 1.00 1.00
Revolving 19,375 0.65 0.48 0.00 1.00 1.00
Previous 19,375 0.92 0.27 1.00 1.00 1.00
20

Table 2. Probability of declaring bankruptcy, 1997-2016
This table reports the unconditional mean probability that a firm files for bankruptcy
within four, eight, and twelve quarters for subsets of firms that do not issue a
syndicated loan and firms that originate a syndicated loan in quarter 0.
Unconditional
probability of filing Non-issuing t-stat,
Issuing firms
for bankruptcy firms difference
within
4 quarters 3.83% 0.67% 22.07
8 quarters 6.20% 1.09% 28.39
12 quarters 6.78% 1.34% 28.97
21

Table 3. Syndicated loan origination and bankruptcy filings
This table reports results of probit regressions of firm characteristics and bankruptcy
filings. The dependent variable is an indicator equal to one if a firm files for
bankruptcy at any time within four, eight, and twelve quarters from time 0.
Syndicated loan is an indicator equal to one if the firm issues a syndicated loan in
quarter 0. Investment grade and Unrated are indicators equal to one if the firm has a
credit rating that is considered “investment grade” or does not have a long term credit
rating, respectively. Assets is the natural log of firm assets. Operating cash flow,
Leverage, Interest expense, and Tangibility are operating cash flow, total debt, interest
expense, and PPE ratios to firm assets, respectively. All specifications include time and
Fama-French industry classification fixed effects. Robust standard errors are clustered
by firm and reported in parentheses. Statistical significance is reported as ***, **, and
* at the 1%, 5%, and 10% levels, respectively.
Bankruptcy filing within: 4 quarters 8 quarters 12 quarters

-0.5876*** -0.5508*** -0.5113***
Syndicated loan
(0.0840) (0.0654) (0.0624)
-0.5560*** -0.6000*** -0.6354***
Investment grade
(0.1106) (0.1111) (0.1085)
0.7846*** 0.8085*** 0.7794***
Unrated
(0.0579) (0.0584) (0.0572)
0.1312*** 0.1443*** 0.1455***
Assets
(0.0114) (0.0120) (0.0119)
-0.0072 -0.0241 -0.0278
Operating cash flow
(0.0240) (0.0229) (0.0233)
-0.0244 -0.0528 -0.0446
Leverage
(0.0393) (0.0395) (0.0344)
-0.1256 -0.0610 -0.0665
Interest expense
(0.1714) (0.1591) (0.1508)
0.3773*** 0.3994*** 0.3956***
Tangibility
(0.1229) (0.1254) (0.1233)
0.0059 0.0078* 0.0091**
Current ratio
(0.0044) (0.0043) (0.0045)
0.0030 0.0030* 0.0026
Market to book
(0.0020) (0.0018) (0.0018)
Year effects Yes Yes Yes
Industry effects Yes Yes Yes
Obervations 305,676 266,236 232,615
Pseudo R-squared 0.348 0.307 0.287
22

Table 4. Determinants of facility spreads
This table reports results of regression of the determinants of facility spreads. The
dependent variable is the facility spread in basis points over LIBOR. Deal size is the
natural log of the dollar amount of the facility. Maturity is the duration of the loan in
months. Covenants 1-5 are the number of investment, performance, liquidity, and
sweep covenants present in the credit agreement. Restricted is an indictor equal to one
if the agreement has a material (dividend) restriction. Secured is an indicator equal to
one if the loan is collateralized by firm assets. Revolving is an indicator equal to one if
the loan is a “revolving” facility wherein the loan is re-evaluated each year. Previous
loan is an indictor equal to one if the borrower has a previous lending relationship
with any lead or participant lender in the syndicate from 1986 forward. Assets is the
natural log of firm assets. Operating cash flow, Leverage, and Tangibility are operating
cash flow, total debt, and PPE ratios to firm assets, respectively. All specifications
include time, loan purpose, and Fama-French industry classification fixed effects.
Robust standard errors are clustered by firm and reported in parentheses. Statistical
significance is reported as ***, **, and * at the 1%, 5%, and 10% levels, respectively.
23

all non-missing CS
-24.62*** -16.89***
Deal size
(0.80) (1.41)
-0.57*** -0.64***
Maturity
(0.07) (0.07)
16.16*** 10.25**
Covenants: 1
(3.84) (4.03)
22.10*** 19.42***
2
(3.78) (4.17)
37.60*** 30.92***
3
(3.33) (3.52)
50.17*** 43.63***
4
(3.07) (3.35)
62.44*** 49.00***
5
(3.05) (3.48)
-64.30*** -57.90***
Revolving
(2.14) (2.26)
-37.75*** -36.18***
Previous loan
(3.78) (4.43)
78.58*** 58.33***
Secured
(1.91) (2.18)
-28.12*** -22.28***
Restricted
(2.00) (2.11)
-9.95***
Assets
(1.16)
-186.59***
Operating cash flow
(19.19)
99.97***
Leverage
(4.56)
-3.49
Tangibility
(5.05)
Year effects Yes Yes
Loan purpose effects Yes Yes
Industry effects Yes Yes
Obervations 19,375 15,500
R-squared 0.438 0.500
24

Table 5. Syndicate structure
This table reports means of syndicate structure characteristics for 19,375 loan
facilities from 1997-2016. Lenders, total, leads, and participants are the total number
of all lenders, lead arrangers, and participant lenders in the syndicate, respectively.
Lead ratio is the ratio of lead arrangers to the total number of lenders in the syndicate.
Shares retained, lead, is the percentage of loan shares held by arrangers at
origination. Typical spread facilities are those wherein the difference between the
observed spread and an expected spread, on a risk-adjusted basis, is in the middle
50% of differenced spreads and therefore “typical”. High (Low) spread facilities are
those whose observed spreads are higher (lower) than expected on a risk-adjusted
basis; differenced spreads are in the highest (lowest) quartile for these facilities. T-
stats are for differences in means in syndicate structure characteristics between
typical and high/low spread facilities.
Typical t-stat,
Syndicate structure High spread
spread difference
lenders, total 8.11 10.01 -12.77
leads 1.52 1.59 -3.57
participants 4.6 5.65 -9.76
lead ratio 27.64 22.90 15.24
shares retained, lead 31.49 23.85 10.53
Typical t-stat,
Low spread
spread difference
lenders, total 9.30 10.01 -4.25
leads 1.43 1.59 -8.11
participants 5.51 5.65 -1.00
lead ratio 23.71 22.90 2.74
shares retained, lead 27.82 23.85 6.96
25

Table 6. Loan issuance and inefficient capital allocation
This table reports results of regressions of loan and firm characteristics on changes in capital allocations. The
dependent variable is the change in cash, acquisition activity, and shareholder payouts (dividends and share
repurchases) as a ratio to firm assets 4, 8, and 12 quarters from quarter 0. Syndicated loan is an indicator equal to one
if the firm issues a syndicated loan in quarter 0. High (Low) spread facilities are those whose observed spreads are
higher (lower) than expected on a risk-adjusted basis; differenced spreads are in the highest (lowest) quartile of all
facilities. Size is the natural log of firm assets. Leverage is the debt to assets ratio, inclusive of long term debt in current
liabilities. Cash flow is cash flow from operations over firm assets. Cash, Acquisitions, and Payouts are cash,
acquisitions, and shareholder payouts ratios to firm assets. All specifications include time and Fama-French industry
classification fixed effects. Robust standard errors are clustered by firm and reported in parentheses. Statistical
26

Changes in investment Cash Acquisition activity Shareholder payouts
policy 4 quarters 8 quarters 12 quarters 4 quarters 8 quarters 12 quarters 4 quarters 8 quarters 12 quarters
-0.0130*** -0.0140*** -0.0132*** -0.0117*** -0.0129*** -0.0123*** 0.3463 -0.2391 -0.7136*
Syndicated loan
(0.0008) (0.0011) (0.0014) (0.0008) (0.0011) (0.0014) (0.3027) (0.3124) (0.4100)
-0.0045*** -0.0022 -0.0002 -0.0028* -0.0004 0.0014 -1.1329 -0.6343 0.2088
High spread
(0.0015) (0.0020) (0.0026) (0.0015) (0.0020) (0.0026) (0.8042) (0.7825) (0.8392)
-0.0007 -0.0039** -0.0067*** -0.0015 -0.0047*** -0.0073*** -1.3631** -0.1229 -0.5291
Low spread
(0.0011) (0.0015) (0.0018) (0.0011) (0.0015) (0.0018) (0.5626) (0.8929) (0.7618)
-0.0029*** -0.0046*** -0.0055*** -0.0028*** -0.0046*** -0.0055*** 0.6273*** 0.9033*** 1.1642***
Size
(0.0002) (0.0003) (0.0005) (0.0002) (0.0003) (0.0005) (0.1015) (0.1024) (0.1296)
-0.0002 -0.0011 -0.0020 -0.0002 -0.0011 -0.0021 0.1331*** 0.1925*** 0.2679***
Leverage
(0.0009) (0.0015) (0.0018) (0.0009) (0.0015) (0.0018) (0.0272) (0.0312) (0.0439)
-0.0015* -0.0033** -0.0043** -0.0015* -0.0032** -0.0042** -0.2575*** -0.3439*** -0.3975***
Cash flow
(0.0009) (0.0014) (0.0018) (0.0009) (0.0013) (0.0018) (0.0436) (0.0444) (0.0546)
-0.0003*** -0.0005*** -0.0006*** -0.0003*** -0.0005*** -0.0006*** 0.0101*** 0.0165*** 0.0269***
Market to book
(0.0001) (0.0001) (0.0002) (0.0001) (0.0001) (0.0002) (0.0019) (0.0026) (0.0038)
-0.1744*** -0.2813*** -0.3515*** -0.1745*** -0.2815*** -0.3515*** 0.4495** 0.6887** 0.8549*
Cash
(0.0033) (0.0056) (0.0073) (0.0033) (0.0055) (0.0073) (0.1770) (0.3310) (0.4500)
5.2877*** 5.0153*** 4.4446***
Acquisitions
(0.2668) (0.3629) (0.4726)
-0.3186*** -0.3797*** -0.4435***
Payouts
(0.0539) (0.0582) (0.0583)
Industry effects Yes Yes Yes Yes Yes Yes Yes Yes Yes
Time effects Yes Yes Yes Yes Yes Yes Yes Yes Yes
Obervations 305,676 266,236 232,615 305,676 266,236 232,615 309,500 270,953 237,444
R-squared 0.118 0.168 0.202 0.118 0.168 0.202 0.137 0.155 0.162
27

Table 7. Loan issuance and operational investment
dependent variable is the change in working capital, capital expenditures, and property, plant and equipment as a ratio
to firm assets 4, 8, and 12 quarters from quarter 0. Syndicated loan is an indicator equal to one if the firm issues a
syndicated loan in quarter 0. High (Low) spread facilities are those whose observed spreads are higher (lower) than
expected on a risk-adjusted basis; differenced spreads are in the highest (lowest) quartile of all facilities. Size is the
natural log of firm assets. Leverage is the debt to assets ratio, inclusive of long term debt in current liabilities. Cash
flow is cash flow from operations over firm assets. Working capital, Capital expenditures and PPE are working capital,
capital expenditures, and property, plant and equipment ratios to firm assets. All specifications include time and Fama-
French industry classification fixed effects. Robust standard errors are clustered by firm and reported in parentheses.
Statistical significance is reported as ***, **, and * at the 1%, 5%, and 10% levels, respectively.
28

Changes in investment Working capital Capital expenditures Property, plant, and equipment
-0.0545*** -0.0601*** -0.0587*** -0.1432*** -0.1638*** -0.1607*** 0.0769*** 0.0958*** 0.0981***
Syndicated loan
(0.0069) (0.0107) (0.0130) (0.0286) (0.0449) (0.0548) (0.0049) (0.0081) (0.0103)
0.0238*** 0.0222** 0.0325** 0.1177*** 0.0601 0.0866 0.0198* -0.0094 -0.0175
High spread
(0.0061) (0.0099) (0.0138) (0.0284) (0.0449) (0.0613) (0.0102) (0.0167) (0.0214)
0.0602*** 0.0677*** 0.0722*** 0.2277*** 0.2654*** 0.2803*** 0.0036 0.0169 0.0283**
Low spread
(0.0059) (0.0090) (0.0114) (0.0311) (0.0479) (0.0608) (0.0070) (0.0109) (0.0139)
0.0776*** 0.1130*** 0.1340*** 0.3437*** 0.4991*** 0.5950*** 0.0112*** 0.0120*** 0.0104***
Size
(0.0051) (0.0084) (0.0105) (0.0207) (0.0344) (0.0432) (0.0012) (0.0023) (0.0033)
-0.1952*** -0.1896** -0.1675* -0.9077*** -0.9412*** -0.8723** -0.0111* 0.0032 0.0230
Leverage
(0.0511) (0.0818) (0.0980) (0.2089) (0.3334) (0.3936) (0.0063) (0.0120) (0.0181)
0.1603*** 0.2059*** 0.2150*** 0.7020*** 0.9720*** 1.0369*** 0.0280*** 0.0645*** 0.0843***
Cash flow
(0.0276) (0.0443) (0.0564) (0.1144) (0.1836) (0.2355) (0.0069) (0.0130) (0.0184)
0.0031 0.0040 0.0018 0.0139* 0.0207 0.0087 0.0066*** 0.0116*** 0.0144***
Market to book
(0.0020) (0.0037) (0.0048) (0.0083) (0.0151) (0.0196) (0.0006) (0.0012) (0.0018)
0.4298*** 0.5762*** 0.6943*** 1.3929*** 1.9698*** 2.5088*** 0.1827*** 0.2498*** 0.2872***
Cash
(0.0505) (0.0777) (0.1002) (0.1993) (0.3071) (0.3954) (0.0158) (0.0297) (0.0428)
-0.3502*** -0.4862*** -0.5638***
Working capital
(0.0265) (0.0416) (0.0503)
-0.3666*** -0.5169*** -0.6057***
Capital expenditures
(0.0260) (0.0415) (0.0494)
-0.2772*** -0.4807*** -0.6146***
PPE
(0.0172) (0.0329) (0.0468)
Obervations 301,689 262,534 229,293 302,002 262,942 229,699 295,564 256,969 224,206
R-squared 0.092 0.121 0.136 0.096 0.128 0.144 0.043 0.054 0.058
29

Table 8. Loan issuance and firm performance
This table reports results of regressions of loan and firm characteristics on changes in firm performance. The dependent
variable is the change in net income (ROA), cash flow from operations, and salary, general, and administrative expenses
(SGA) as a ratio to firm assets 4, 8, and 12 quarters from quarter 0. Syndicated loan is an indicator equal to one if the
firm issues a syndicated loan in quarter 0. High (Low) spread facilities are those whose observed spreads are higher
(lower) than expected on a risk-adjusted basis; differenced spreads are in the highest (lowest) quartile of all facilities.
Size is the natural log of firm assets. Leverage is the debt to assets ratio, inclusive of long term debt in current
liabilities. Cash flow is cash flow from operations over firm assets. ROA and SGA are return on assets and salary,
general, and administrative expenses ratios to firm assets. All specifications include time and Fama-French industry
30

ROA Cash flow SGA
Changes in performance
4 quarters 8 quarters 12 quarters 4 quarters 8 quarters 12 quarters 4 quarters 8 quarters 12 quarters
-0.0427*** -0.0484*** -0.0467*** -0.0304*** -0.0343*** -0.0317*** 0.0174*** 0.0091 0.0080
Syndicated loan
(0.0042) (0.0058) (0.0068) (0.0029) (0.0042) (0.0048) (0.0065) (0.0071) (0.0075)
0.0079 0.0149** 0.0294*** 0.0104*** 0.0158*** 0.0224*** -0.0146* -0.0185* -0.0255**
High spread
(0.0057) (0.0073) (0.0086) (0.0033) (0.0052) (0.0064) (0.0089) (0.0110) (0.0115)
0.0359*** 0.0419*** 0.0428*** 0.0228*** 0.0320*** 0.0364*** -0.0263*** -0.0265*** -0.0313***
Low spread
(0.0039) (0.0051) (0.0066) (0.0027) (0.0039) (0.0051) (0.0073) (0.0093) (0.0119)
0.0622*** 0.0768*** 0.0921*** 0.0414*** 0.0582*** 0.0683*** -0.0538*** -0.0658*** -0.0736***
Size
(0.0033) (0.0046) (0.0060) (0.0025) (0.0035) (0.0044) (0.0040) (0.0058) (0.0071)
-0.1600*** -0.1519*** -0.1900*** -0.0884*** -0.1212*** -0.1678*** 0.1231*** 0.1727*** 0.1823**
Leverage
(0.0282) (0.0396) (0.0521) (0.0184) (0.0325) (0.0423) (0.0390) (0.0635) (0.0793)
-0.0043** -0.0034 -0.0066* -0.0022 -0.0010 -0.0038 0.0119*** 0.0104 0.0081
Market to book
(0.0022) (0.0028) (0.0035) (0.0017) (0.0022) (0.0026) (0.0044) (0.0075) (0.0088)
0.0797*** 0.1022** 0.1646*** -0.0071 0.0224 0.0484 0.1311*** 0.0913 0.1229
Cash
(0.0285) (0.0423) (0.0543) (0.0214) (0.0323) (0.0399) (0.0500) (0.0785) (0.0959)
-0.3633*** -0.4190*** -0.5135***
ROA
(0.0192) (0.0259) (0.0282)
-0.3111*** -0.4210*** -0.5144***
Operating Cash Flow
(0.0193) (0.0273) (0.0303)
-0.2882*** -0.3918*** -0.4553***
SGA
(0.0163) (0.0268) (0.0337)
Obervations 254,853 222,520 194,819 247,174 215,697 188,888 248,783 215,240 187,934
R-squared 0.119 0.109 0.122 0.079 0.084 0.089 0.148 0.182 0.195
31

Table 9. Cumulative abnormal returns around loan issuance
This table reports cumulative abnormal stock returns in a -3 to 3 day window around
loan start date at day 0. The estimation window is -150 to -50 days before the event,
with a minimum of 70 days required to calculate expected turns. The market
adjustment model calculates expected returns with the CRSP value weighted market
return, inclusive of all NYSE, NASDAQ, and AMEX stocks. T-stat reports t-statistics
for statistical significance of the cumulative abnormal return.
Event window -3, 3 CAR t-stat

Fama-French three factor model 0.47% 4.52
Market adjusted model 0.81% 7.95
32

Table 10. Covenant violations and inefficient capital allocation
dependent variable is the change in cash, acquisition activity, and shareholder payouts (dividends and share
repurchases) as a ratio to firm assets 4, 8, and 12 quarters from quarter 0. Violation is an indicator equal to one if the
firm reported being in technical violation of one or more loan covenants that quarter, per Nini, Smith, and Sufi (2012).
Syndicated loan is an indicator equal to one if the firm issues a syndicated loan in quarter 0. High (Low) spread facilities
are those whose observed spreads are higher (lower) than expected on a risk-adjusted basis; differenced spreads are in
the highest (lowest) quartile of all facilities. Size is the natural log of firm assets. Leverage is the debt to assets ratio,
inclusive of long term debt in current liabilities. Cash flow is cash flow from operations over firm assets. Cash,
Acquisitions, and Payouts are cash, acquisitions, and shareholder payouts ratios to firm assets. All specifications
include time and Fama-French industry classification fixed effects. Robust standard errors are clustered by firm and
reported in parentheses. Statistical significance is reported as ***, **, and * at the 1%, 5%, and 10% levels, respectively.
33

Changes in investment Cash Acquisition activity Shareholder payouts
-0.0142*** -0.0150*** -0.0139*** -0.0140*** -0.0149*** -0.0138*** 0.4346 0.1051 -0.1841
Syndicated loan
(0.0010) (0.0014) (0.0017) (0.0010) (0.0013) (0.0017) (0.2715) (0.3780) (0.4473)
-0.0023 -0.0010 0.0002 -0.0021 -0.0009 0.0003 -0.8212 -0.2724 0.1018
High spread
(0.0018) (0.0025) (0.0032) (0.0017) (0.0025) (0.0032) (0.8583) (1.0098) (1.0690)
-0.0005 -0.0046** -0.0087*** -0.0006 -0.0046** -0.0088*** -1.8926*** -1.0494** -1.1075
Low spread
(0.0014) (0.0019) (0.0022) (0.0014) (0.0019) (0.0022) (0.4899) (0.4444) (0.7673)
-0.0088*** -0.0041** -0.0009 -0.0088*** -0.0041** -0.0009 -0.1588 -0.3039* -0.4211**
Violation
(0.0012) (0.0020) (0.0027) (0.0012) (0.0020) (0.0027) (0.1274) (0.1643) (0.2079)
-0.0028*** -0.0043*** -0.0049*** -0.0028*** -0.0043*** -0.0049*** 0.6882*** 0.9409*** 1.1804***
Size
(0.0003) (0.0004) (0.0006) (0.0003) (0.0004) (0.0006) (0.1219) (0.1091) (0.1270)
-0.0001 -0.0015 -0.0036 -0.0001 -0.0015 -0.0036 0.1247*** 0.1684*** 0.2299***
Leverage
(0.0014) (0.0022) (0.0025) (0.0014) (0.0022) (0.0025) (0.0359) (0.0375) (0.0469)
-0.0019 -0.0033* -0.0035* -0.0019 -0.0033* -0.0035* -0.2918*** -0.3521*** -0.3776***
Cash flow
(0.0012) (0.0018) (0.0021) (0.0012) (0.0018) (0.0021) (0.0599) (0.0530) (0.0592)
-0.0003*** -0.0005*** -0.0006*** -0.0003*** -0.0005*** -0.0006*** 0.0101*** 0.0168*** 0.0275***
Market to book
(0.0001) (0.0002) (0.0002) (0.0001) (0.0002) (0.0002) (0.0024) (0.0032) (0.0043)
-0.1792*** -0.2917*** -0.3599*** -0.1791*** -0.2917*** -0.3599*** 0.4879*** 0.9679*** 1.1708**
Cash
(0.0040) (0.0066) (0.0085) (0.0040) (0.0066) (0.0085) (0.1769) (0.3356) (0.4610)
2.5202*** 1.8723*** 1.2827
Acquisitions
(0.5455) (0.7174) (0.9354)
-0.4738*** -0.5583*** -0.6330***
Payouts
(0.0990) (0.0853) (0.0639)
Obervations 179,643 163,188 149,176 179,643 163,188 149,176 181,307 165,595 151,856
R-squared 0.121 0.174 0.207 0.121 0.174 0.207 0.206 0.265 0.278
34

Table 11. Covenant violations and operational investment
to firm assets 4, 8, and 12 quarters from quarter 0. Violation is an indicator equal to one if the firm reported being in
technical violation of one or more loan covenants that quarter, per Nini, Smith, and Sufi (2012). Syndicated loan is an
indicator equal to one if the firm issues a syndicated loan in quarter 0. High (Low) spread facilities are those whose
observed spreads are higher (lower) than expected on a risk-adjusted basis; differenced spreads are in the highest
(lowest) quartile of all facilities. Size is the natural log of firm assets. Leverage is the debt to assets ratio, inclusive of
long term debt in current liabilities. Cash flow is cash flow from operations over firm assets. Working capital, Capital
expenditures and PPE are working capital, capital expenditures, and property, plant and equipment ratios to firm
assets. All specifications include time and Fama-French industry classification fixed effects. Robust standard errors are
clustered by firm and reported in parentheses. Statistical significance is reported as ***, **, and * at the 1%, 5%, and
10% levels, respectively.
35

-0.0451*** -0.0557*** -0.0602*** -0.0895*** -0.1311*** -0.1540** 0.0858*** 0.1012*** 0.0994***
Syndicated loan
(0.0075) (0.0119) (0.0140) (0.0318) (0.0508) (0.0599) (0.0060) (0.0098) (0.0125)
0.0225*** 0.0147 0.0219 0.1074*** 0.0196 0.0455 0.0225* 0.0040 0.0041
High spread
(0.0075) (0.0125) (0.0177) (0.0350) (0.0574) (0.0801) (0.0123) (0.0194) (0.0244)
0.0531*** 0.0576*** 0.0634*** 0.2015*** 0.2275*** 0.2489*** 0.0041 0.0215 0.0335**
Low spread
(0.0067) (0.0105) (0.0136) (0.0392) (0.0641) (0.0830) (0.0089) (0.0134) (0.0169)
0.0872*** 0.1602*** 0.2110*** 0.3066*** 0.5396*** 0.7328*** -0.1140*** -0.2543*** -0.3503***
Violation
(0.0141) (0.0244) (0.0318) (0.0610) (0.1091) (0.1401) (0.0081) (0.0157) (0.0219)
0.0737*** 0.1105*** 0.1378*** 0.3314*** 0.4916*** 0.6095*** 0.0086*** 0.0053* 0.0027
Size
(0.0060) (0.0097) (0.0120) (0.0249) (0.0404) (0.0498) (0.0016) (0.0030) (0.0041)
-0.1101 -0.1264 -0.1161 -0.6144** -0.7369* -0.6693 0.0018 0.0298* 0.0516**
Leverage
(0.0694) (0.1069) (0.1196) (0.2903) (0.4420) (0.4735) (0.0087) (0.0161) (0.0228)
0.1009*** 0.1416*** 0.1896*** 0.4445*** 0.7243*** 0.9852*** 0.0395*** 0.0839*** 0.0971***
Cash flow
(0.0363) (0.0540) (0.0637) (0.1509) (0.2257) (0.2763) (0.0098) (0.0162) (0.0213)
0.0041 0.0042 0.0045 0.0157 0.0204 0.0190 0.0081*** 0.0126*** 0.0147***
Market to book
(0.0028) (0.0043) (0.0052) (0.0116) (0.0179) (0.0219) (0.0010) (0.0016) (0.0023)
0.4117*** 0.5608*** 0.7051*** 1.4180*** 1.9704*** 2.4927*** 0.1521*** 0.1993*** 0.2258***
Cash
(0.0589) (0.0885) (0.1088) (0.2291) (0.3360) (0.4064) (0.0197) (0.0360) (0.0504)
-0.3343*** -0.5013*** -0.6259***
Working capital
(0.0369) (0.0561) (0.0636)
-0.3606*** -0.5448*** -0.6781***
(0.0369) (0.0576) (0.0630)
-0.3079*** -0.5232*** -0.6406***
PPE
(0.0228) (0.0415) (0.0570)
Obervations 177,765 161,407 147,506 177,967 161,643 147,732 175,071 158,522 144,518
R-squared 0.099 0.136 0.164 0.106 0.147 0.175 0.054 0.068 0.073
36

Table 12. Covenant violations and firm performance
(SGA) as a ratio to firm assets 4, 8, and 12 quarters from quarter 0. Violation is an indicator equal to one if the firm
reported being in technical violation of one or more loan covenants that quarter, per Nini, Smith, and Sufi (2012).
Syndicated loan is an indicator equal to one if the firm issues a syndicated loan in quarter 0. High (Low) spread facilities
are those whose observed spreads are higher (lower) than expected on a risk-adjusted basis; differenced spreads are in
the highest (lowest) quartile of all facilities. Size is the natural log of firm assets. Leverage is the debt to assets ratio,
inclusive of long term debt in current liabilities. Cash flow is cash flow from operations over firm assets. ROA and SGA
are return on assets and salary, general, and administrative expenses ratios to firm assets. All specifications include
time and Fama-French industry classification fixed effects. Robust standard errors are clustered by firm and reported in
parentheses. Statistical significance is reported as ***, **, and * at the 1%, 5%, and 10% levels, respectively.
37

ROA Cash flow SGA
-0.0428*** -0.0546*** -0.0543*** -0.0306*** -0.0363*** -0.0330*** 0.0126 0.0027 0.0043
Syndicated loan
(0.0046) (0.0066) (0.0080) (0.0034) (0.0047) (0.0053) (0.0081) (0.0086) (0.0085)
0.0106 0.0125 0.0288** 0.0140*** 0.0128** 0.0197** -0.0105 -0.0153 -0.0207
High spread
(0.0070) (0.0093) (0.0112) (0.0040) (0.0065) (0.0080) (0.0115) (0.0140) (0.0145)
0.0372*** 0.0428*** 0.0417*** 0.0217*** 0.0289*** 0.0321*** -0.0167* -0.0144 -0.0215
Low spread
(0.0047) (0.0062) (0.0079) (0.0032) (0.0046) (0.0056) (0.0097) (0.0121) (0.0160)
0.0671*** 0.1138*** 0.1466*** 0.0375*** 0.0724*** 0.0921*** -0.0320** -0.0787*** -0.1062***
Violation
(0.0085) (0.0127) (0.0164) (0.0058) (0.0098) (0.0119) (0.0130) (0.0185) (0.0184)
0.0624*** 0.0773*** 0.0930*** 0.0430*** 0.0567*** 0.0663*** -0.0531*** -0.0661*** -0.0776***
Size
(0.0039) (0.0052) (0.0068) (0.0030) (0.0040) (0.0048) (0.0046) (0.0068) (0.0084)
-0.1604*** -0.1457*** -0.1842** -0.0725*** -0.0805** -0.1286** 0.0953** 0.1780** 0.1504*
Leverage
(0.0402) (0.0538) (0.0734) (0.0245) (0.0400) (0.0544) (0.0427) (0.0716) (0.0907)
-0.0047 -0.0060 -0.0065 -0.0044* -0.0039 -0.0057* 0.0226*** 0.0141** 0.0184**
Market to book
(0.0031) (0.0037) (0.0044) (0.0024) (0.0026) (0.0034) (0.0052) (0.0067) (0.0076)
0.0609* 0.0930* 0.1408** 0.0047 0.0347 0.0616 0.0678 0.0562 -0.0372
Cash
(0.0337) (0.0508) (0.0672) (0.0260) (0.0396) (0.0505) (0.0559) (0.0932) (0.1182)
-0.4069*** -0.4415*** -0.5080***
ROA
(0.0258) (0.0335) (0.0367)
-0.3588*** -0.4397*** -0.5054***
Cash Flow
(0.0274) (0.0357) (0.0410)
-0.3190*** -0.4299*** -0.4790***
SGA
(0.0216) (0.0362) (0.0423)
Obervations 150,308 136,516 124,858 144,345 131,194 120,220 145,832 131,075 119,633
R-squared 0.142 0.102 0.091 0.110 0.094 0.072 0.164 0.196 0.191
38

Table 13. Shareholder governance and operational investment
to firm assets 4, 8, and 12 quarters from quarter 0. Blockholder is an indicator equal to one if the firm has one or more
5% institutional block holders. Syndicated loan is an indicator equal to one if the firm issues a syndicated loan in
quarter 0. High (Low) spread facilities are those whose observed spreads are higher (lower) than expected on a risk-
adjusted basis; differenced spreads are in the highest (lowest) quartile of all facilities. Size is the natural log of firm
assets. Leverage is the debt to assets ratio, inclusive of long term debt in current liabilities. Cash flow is cash flow from
operations over firm assets. Working capital, Capital expenditures and PPE are working capital, capital expenditures,
and property, plant and equipment ratios to firm assets. All specifications include time and Fama-French industry
39

-0.0567*** -0.0647*** -0.0646*** -0.1523*** -0.1832*** -0.1854*** 0.0755*** 0.0923*** 0.0928***
Syndicated loan
(0.0068) (0.0106) (0.0129) (0.0284) (0.0446) (0.0543) (0.0049) (0.0081) (0.0103)
0.0268*** 0.0288*** 0.0405*** 0.1294*** 0.0866* 0.1190* 0.0217** -0.0045 -0.0105
High spread
(0.0061) (0.0099) (0.0139) (0.0282) (0.0447) (0.0615) (0.0102) (0.0167) (0.0213)
0.0577*** 0.0624*** 0.0643*** 0.2189*** 0.2464*** 0.2509*** 0.0022 0.0135 0.0220
Low spread
(0.0059) (0.0089) (0.0114) (0.0310) (0.0478) (0.0608) (0.0070) (0.0110) (0.0141)
0.0449*** 0.0960*** 0.1319*** 0.1778*** 0.3905*** 0.5441*** 0.0292*** 0.0722*** 0.1184***
Blockholder
(0.0063) (0.0106) (0.0139) (0.0266) (0.0449) (0.0586) (0.0038) (0.0072) (0.0107)
0.0744*** 0.1062*** 0.1248*** 0.3313*** 0.4720*** 0.5574*** 0.0092*** 0.0070*** 0.0023
Size
(0.0050) (0.0082) (0.0102) (0.0204) (0.0336) (0.0419) (0.0012) (0.0023) (0.0033)
-0.1941*** -0.1874** -0.1644* -0.9032*** -0.9312*** -0.8579** -0.0107* 0.0043 0.0248
Leverage
(0.0511) (0.0819) (0.0981) (0.2090) (0.3335) (0.3936) (0.0063) (0.0120) (0.0181)
0.1596*** 0.2044*** 0.2127*** 0.6994*** 0.9655*** 1.0271*** 0.0275*** 0.0632*** 0.0821***
Cash flow
(0.0276) (0.0443) (0.0564) (0.1145) (0.1837) (0.2355) (0.0068) (0.0129) (0.0183)
0.0031 0.0039 0.0016 0.0136 0.0202 0.0080 0.0065*** 0.0115*** 0.0142***
Market to book
(0.0020) (0.0037) (0.0048) (0.0083) (0.0151) (0.0196) (0.0006) (0.0012) (0.0018)
0.4243*** 0.5645*** 0.6782*** 1.3727*** 1.9259*** 2.4473*** 0.1796*** 0.2421*** 0.2743***
Cash
(0.0505) (0.0776) (0.0999) (0.1990) (0.3060) (0.3938) (0.0158) (0.0297) (0.0427)
-0.3496*** -0.4849*** -0.5621***
Working capital
(0.0265) (0.0416) (0.0503)
-0.3659*** -0.5155*** -0.6038***
(0.0260) (0.0415) (0.0494)
-0.2763*** -0.4788*** -0.6117***
PPE
(0.0172) (0.0329) (0.0467)
Obervations 301,689 262,534 229,293 302,002 262,942 229,699 295,564 256,969 224,206
R-squared 0.092 0.122 0.136 0.096 0.129 0.145 0.043 0.056 0.061
40

Table 14. Shareholder governance and firm performance
(SGA) as a ratio to firm assets 4, 8, and 12 quarters from quarter 0. Blockholder is an indicator equal to one if the firm
has one or more 5% institutional block holders. Syndicated loan is an indicator equal to one if the firm issues a
syndicated loan in quarter 0. High (Low) spread facilities are those whose observed spreads are higher (lower) than
expected on a risk-adjusted basis; differenced spreads are in the highest (lowest) quartile of all facilities. Size is the
natural log of firm assets. Leverage is the debt to assets ratio, inclusive of long term debt in current liabilities. Cash
flow is cash flow from operations over firm assets. ROA and SGA are return on assets and salary, general, and
administrative expenses ratios to firm assets. All specifications include time and Fama-French industry classification
fixed effects. Robust standard errors are clustered by firm and reported in parentheses. Statistical significance is
reported as ***, **, and * at the 1%, 5%, and 10% levels, respectively.
41

ROA Cash flow SGA
-0.0439*** -0.0506*** -0.0496*** -0.0313*** -0.0360*** -0.0341*** 0.0184*** 0.0109 0.0107
Syndicated loan
(0.0042) (0.0057) (0.0068) (0.0029) (0.0041) (0.0048) (0.0065) (0.0072) (0.0075)
0.0092 0.0174** 0.0323*** 0.0114*** 0.0177*** 0.0247*** -0.0160* -0.0209* -0.0288**
High spread
(0.0056) (0.0072) (0.0086) (0.0032) (0.0051) (0.0064) (0.0089) (0.0110) (0.0115)
0.0349*** 0.0401*** 0.0400*** 0.0220*** 0.0305*** 0.0341*** -0.0253*** -0.0249*** -0.0284**
Low spread
(0.0039) (0.0051) (0.0066) (0.0027) (0.0039) (0.0052) (0.0073) (0.0093) (0.0119)
0.0208*** 0.0388*** 0.0537*** 0.0158*** 0.0299*** 0.0424*** -0.0202*** -0.0358*** -0.0579***
Blockholder
(0.0039) (0.0056) (0.0072) (0.0027) (0.0042) (0.0055) (0.0065) (0.0099) (0.0121)
0.0609*** 0.0743*** 0.0887*** 0.0404*** 0.0563*** 0.0656*** -0.0524*** -0.0633*** -0.0697***
Size
(0.0033) (0.0046) (0.0060) (0.0025) (0.0035) (0.0044) (0.0039) (0.0057) (0.0069)
-0.1596*** -0.1511*** -0.1889*** -0.0881*** -0.1207*** -0.1670*** 0.1223*** 0.1709*** 0.1792**
Leverage
(0.0282) (0.0396) (0.0522) (0.0184) (0.0325) (0.0424) (0.0391) (0.0637) (0.0796)
-0.0044** -0.0034 -0.0066* -0.0022 -0.0010 -0.0039 0.0119*** 0.0104 0.0082
Market to book
(0.0022) (0.0028) (0.0035) (0.0017) (0.0022) (0.0026) (0.0044) (0.0075) (0.0088)
0.0751*** 0.0938** 0.1528*** -0.0106 0.0159 0.0391 0.1349*** 0.0979 0.1335
Cash
(0.0285) (0.0423) (0.0542) (0.0215) (0.0323) (0.0398) (0.0499) (0.0784) (0.0956)
-0.3634*** -0.4192*** -0.5138***
ROA
(0.0192) (0.0260) (0.0282)
-0.3112*** -0.4213*** -0.5149***
Cash flow
(0.0193) (0.0273) (0.0303)
-0.2881*** -0.3916*** -0.4551***
SGA
(0.0163) (0.0268) (0.0337)
Obervations 254,853 222,520 194,819 247,174 215,697 188,888 248,783 215,240 187,934
R-squared 0.119 0.109 0.122 0.079 0.084 0.090 0.148 0.182 0.195
42

Jandik, Tomas y McCumber, William. Creditors Governance

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Jandik, Tomas y McCumber, William. Creditors Governance

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Creditor Governance

Tomas Jandik 1 and William R. McCumber 2

JEL codes: G21, G32, G33, G34

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2. Data and Summary Statistics

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3. Loan Origination and Default Frequency

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A: All firms Obs. Mean Std. dev. 25th Median 75th

B: Facilities Obs. Mean Std. dev. 25th Median 75th

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Bankruptcy filing within: 4 quarters 8 quarters 12 quarters

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Event window -3, 3 CAR t-stat

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