Rights statement: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Ling Cen, Sudipto Dasgupta, Redouane Elkamhi, and Raunaq S. Pungaliya Reputation and Loan Contract Terms: The Role of Principal Customers Review of Finance 2016 20: 501-533. is available online at: http://rof.oxfordjournals.org/content/20/2/501
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Reputation and loan contract terms
T2 - the role of principal customers
AU - Cen, Ling
AU - Dasgupta, Sudipto
AU - Elkamhi, Redouane
AU - Pungaliya, Raunaq S.
N1 - This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Ling Cen, Sudipto Dasgupta, Redouane Elkamhi, and Raunaq S. Pungaliya Reputation and Loan Contract Terms: The Role of Principal Customers Review of Finance 2016 20: 501-533. is available online at: http://rof.oxfordjournals.org/content/20/2/501
PY - 2016/3
Y1 - 2016/3
N2 - Principal customers have strong incentives to screen and/or monitor suppliers to ensure supply-chain stability; consequently, the implicit certification from the existence of long-term relationships with principal customers has reputational consequences that potentially spill over to other markets. We argue that one such consequence is smaller loan spreads and looser loan covenants on bank loans, as firms that are able to hold on to principal customers longer are perceived as safer firms by banks. We address causality and endogeneity issues via a variety of tests and find consistent results. Our study suggests that non-financial stakeholders can have important effects on the decisions of financial stakeholders.
AB - Principal customers have strong incentives to screen and/or monitor suppliers to ensure supply-chain stability; consequently, the implicit certification from the existence of long-term relationships with principal customers has reputational consequences that potentially spill over to other markets. We argue that one such consequence is smaller loan spreads and looser loan covenants on bank loans, as firms that are able to hold on to principal customers longer are perceived as safer firms by banks. We address causality and endogeneity issues via a variety of tests and find consistent results. Our study suggests that non-financial stakeholders can have important effects on the decisions of financial stakeholders.
U2 - 10.1093/rof/rfv014
DO - 10.1093/rof/rfv014
M3 - Journal article
VL - 20
SP - 501
EP - 533
JO - Review of Finance
JF - Review of Finance
SN - 1572-3097
IS - 2
ER -