Do Better Managers Get Better Loan Contracts?

• In Event: Managerial Issues and International Standards

Abstract

This paper examines the impact of managerial ability on bank loan contracting. We find that
firms with high-ability managers enjoy more favorable loan contract terms, such as lower loan
price, fewer financial covenants, and less concentrated syndicates. Moreover, the relation
between managerial ability and loan price is more pronounced for firms with higher information
asymmetry. Finally, we find that managerial ability is positively related to firm future
performance and negatively related to firm risks, which indicating that managerial ability affects
bank loan contracting terms via both wealth effects and information effects.

Authors

• Ning Ren, Rensselaer Polytechnic Institute

• Bill Francis, Rensselaer Polytechnic Institute

• Qiang Wu, Rensselaer Polytechnic Institute

• Xian Sun, Johns Hopkins University