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 Why Won't You Forgive Me? The Long-Lasting Effect of Misreporting on Bank Loan Pricing (with Sudheer Chava and Shane A. Johnson)
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Firms that misreport financial information pay greater spreads on their bank loans for five years following their restatements, whether benchmarked against their pre-restatement loans or similar loans made to matched non-misreporting firms. Misreporting firms that promptly replace certain parties who are potentially related to the misreporting see their spreads fall to benchmark levels within three years following restatement. Large fractions of firms, however, do not promptly replace the potentially related parties and continue to pay premiums over benchmark spread levels for five years following restatement. The results suggest that misreporting creates a long-lasting and costly stigma, but that certain actions can reduce the duration of the stigma.
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Can Shareholder-Creditor Conflicts Explain Weak Governance?: Evidence from the Value of Cash Holdings (with Neal Galpin) |
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If firms choose to remain weakly governed, some cost must prevent improvements. In this paper, we ask whether one proposed factor, shareholder-creditor conflicts, generate costs large enough to prevent improvements in governance. To do so, we estimate the value of cash as a function of governance, leverage, and the interaction of the two. We find that governance increases the value of cash, but that leverage reduces the gain from strong governance. However, the magnitudes are far too small to explain why weak governance firms remain weakly governed. Our estimates suggest more than 80% of weakly governed firms would increase the value of their cash by improving governance. In fact, half of weakly governed firms would increase the value of their cash holdings by $0.35 or more per dollar held by improving governance. Our focus on cash holdings does not seem to drive our results, nor do endogenous governance choices or nonlinearities reverse our conclusions. |
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