Three essays in financial accounting

Abstract

My thesis covers three distinct topics in the area of financial accounting. My first essay, in Chapter 1, examines the competitive effects of initial public offerings (IPO) on industry peers’ bank loan terms. By using 13,075 facility-firm observations from 1989 to 2011, I find that bank loans initiated after the IPO for the industry incumbent firms have significant higher loan spread, higher likelihood of employing performance pricing provisions, and higher commitment fees. I also find that the syndicate loan structure for industry incumbents become more concentrated after successful IPOs in the industry: the number of lenders declines while lead bank share increases. In a series of robustness tests, I show that banks imposing more stringent loan terms on the industry incumbents to reimburse the increased operating risk and adverse selection cost caused by large IPO in the industry.

My third essay, in Chapter 3, investigates if cash savings from tax avoidance practice substitute to external financing. I exploit interstate banking deregulation as quasi-external shocks to examine whether firms have less tax avoidance practice after banking deregulation, because of cheaper and easier access to credit from banks. I find no empirical evidence to support this substitutive relationship, even for firms with high financial constraints, high external financing dependence and prior out-of-state banking relationships.

My second essay, in Chapter 2, studies the impact of managerial ability on bank loan contracting. I find that firms with high-ability managers obtain more favorable loan contract terms, such as lower loan price and less stringent financial covenants. Moreover, the relation between managerial ability and loan price is more pronounced in relationship lending, as well as for firms with higher information asymmetry and higher default risk. Finally, I find that managerial ability is positively related to firm future performance and negatively related to firm future default risk, indicating that managerial ability affects bank loan contracting via both valuation effect and information effect.