Topic:Does Management Earnings Forecast Matter in Private Loan Markets?
Speaker:Jennifer Wu Tucker, Fisher School of Accounting, University of Florida
Time:Friday, June 22nd, 15:00-16:30
Place:Room 217, Guanghua Building 2
Most prior research examines the information role of management earnings forecast (MEF) in equity markets. We investigate the confirmation role of MEF in private loan markets and hypothesize that MEF may enhance the credibility of private information communicated to lenders and therefore reduce loan spreads. Consistent with this hypothesis, we find negative associations between the occurrence, frequency, and precision of MEF and the spreads of subsequently originated loans. The economic effect is significant: among firms that provide an MEF at some point during our sample period, those issuing an MEF in the six months preceding a new loan experience a loan spread 19 basis points lower than those not issuing an MEF (about $0.88 million in annual interest savings). These associations are stronger for firms with recent restatements or in periods of greater economic uncertainty, and are weaker for firms with relationship lending. These results indicate that the effects of MEF are more pronounced when the confirmation role of MEF is in greater demand. We also find that managers increase the frequency and precision of MEF in anticipation of new loans. Overall, we provide indirect evidence of the confirmation role of MEF in private loan markets.
Prof. Jennifer Wu Tucker joined the University of Florida after she received her Ph.D. in Accounting from the New York University, Stern School of Business in 2004. She has published in Journal of Accounting, The Accounting Review and the Contemporary Accounting Research.
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