Bank loan spread and private information: pending approval patents

Marlene Plumlee, Yuan Xie, Meng Yan, Jeff Jiewei Yu

Research output: Contribution to journalArticlepeer-review

43 Scopus citations

Abstract

This study examines a specific source of lenders’ ex ante information advantage, private information about borrowers’ forthcoming patents. We examine this setting to provide evidence of the impact of such private information on borrowers’ cost of debt. We find evidence consistent with lenders incorporating private information by charging borrowers with forthcoming patents a lower spread than borrowers that lack that private information. We document a negative association between loan spread and the citation count on forthcoming patents, consistent with borrowers providing lenders with detailed information regarding future expected cash flows from forthcoming patents and lenders responding through a reduction in interest costs for those borrowers. We also show that the reduction in loan spreads is related to the expected value of the forthcoming patent and is greater for borrowers with higher initial information uncertainty and default risk, and when the lead lender has greater loan concentration in the borrower’s industry. Our results suggest that forthcoming patents are a significant source of private information useful to borrowers and employed by lenders.

Original languageEnglish (US)
Pages (from-to)593-638
Number of pages46
JournalReview of Accounting Studies
Volume20
Issue number2
DOIs
StatePublished - Jun 1 2015
Externally publishedYes

Keywords

  • Cost of debt
  • Information advantage
  • Information uncertainty
  • NOA
  • Patent pending
  • Private information
  • SPREAD

ASJC Scopus subject areas

  • Accounting
  • General Business, Management and Accounting

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