Faculty of Business Administration
Hosted by The Business Research and Training Center
The Information Content of Bank Loans
Morris Ming LIU
Assistant Professor in Accounting
University of Macau
Date: 16 September, 2020 (Wednesday)
Online Registration: https://umac.au1.qualtrics.com/jfe/form/SV_73S7sjeVgHc2ljT
Previous research provides ample evidence indicating that firms incur significantly positive abnormal returns upon the announcements of bank loan agreements. Contemporary theoretical research has identified two special roles that banks play which can explain the abnormal loan announcement returns borrowing firms enjoy: banks’ ex ante credit certification and banks’ ex post monitoring of the borrowing firms. Based on a large sample size, we examine both borrowing firms’ abnormal announcement returns and firms’ performance around the loan agreements. Together, the results jointly suggest that banks provide both ex ante credit certification and ex post monitoring to the borrowing firms. Our results also suggest that although firms borrowing from banks suffer performance deterioration before the loan agreements, banks’ decision to enter into loan agreements convey positive information about the borrower’s credit risk and banks’ ability to monitor the borrowers and turn things around. Further, our empirical evidence also suggests that loan covenants serve both a signal about the credit quality of the borrower and a mechanism to alleviate agency problems between the debt holders and equity holders. However, results suggest that the covenants’ role in signaling borrowers’ credit risk dominate its role in alleviating the agency problems.
(This is a joint work with UM PhD and master students)
Dr. Morris Liu (PhD, CPA) is currently an Assistant Professor in Accounting at Faculty of Business Administration, University of Macau. He has published research papers in financial accounting, auditing, capital market studies, auditing, corporate governance and corporate social responsibilities and received best paper awards in international academic conferences. Dr. Liu has taught a variety of courses in University of Macau and Hong Kong Baptist University, including financial accounting, managerial accounting, auditing, accounting information systems, financial management and accounting in the hospitality industry, for undergraduate, postgraduate and executive programs.