Do Tighter Loan Covenants Signal Improved Future Corporate Results? The Case of Performance Pricing Covenants
研究了银行贷款中的业绩定价契约如何通过自动调整利差来传递借款人未来业绩改善的信号，发现该信号与正向的贷款公告回报和未来业绩提升相关。
Covenants in corporate bonds and loan agreements mitigate agency conflicts between borrowers and lenders and may provide a signal of borrower quality to help resolve information asymmetry. Performance pricing covenants in bank loans specify automatic adjustments to loan spreads based on borrowers’ subsequent performance. Our covenant signaling framework views interest‐decreasing performance pricing as a tight covenant associated with borrowers’ private information on improved future performance accompanied by reduced credit risk. This positive signal is associated with larger positive loan announcement returns and greater improvements in future borrower performance. Further, in addition to signaling value, we find that the spread impact of this class of covenant also depends on its option value and reduction in transaction costs.