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7. Additional Tests
7.1 The deal-level analysis
The syndicated loan tranches, or loan facilities, are grouped in loan deals, or packages, when borrowers enter into multiple agreements at the same time. A typical package includes facilities of different price, type, or maturities (Houston et al.
[2007]). In my sample, 80% of the loan deals contain only one facility, 15% of the loan deals have two facilities, and there are a total of 2,219 loan facilities for the 1,826 loan deals. Sufi [2007] argues that treating multiple tranches on the same syndicated loan deal as independent observations could lead to erroneously small standard errors.
Thus, I repeat my hypothesis1~3 at the deal level and the deal-level results are robust to a facility-level analysis.
7.2 The joint determination of loan contractual terms
The results reported thus far indicate that mandatory IFRS reporting has an adverse effect on the loan syndicate structure and uses of the financial covenant.
Melnik and Plaut [1986] suggest that a loan contract is a package of n-contractual terms which include both price and non-price terms. If mandatory IFRS reporting reduces lenders’ or borrowers’ incentives to make debt contracts based on accounting information, lenders could provide borrowers a trade-off between certain contractual terms. Thus, I further examine the extent to which other loan contractual terms act as substitutes or complements for accounting-based terms when a borrower mandatorily adopts IFRS reporting.
To test this argument, I perform the same difference-in-difference model as employed in equation (1) ~ (3) and use Log(Loan_size), Loan_maturity, and Spread as the dependent variable. In the same sample of 2,227 loans, table 8 shows that the
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estimated coefficients on Mandatory_Adopter* Post_mandatory are: -0.40 (t-value=-5.58), and -1.22 (t-value=-5.62) for the Log(Loan_size) (model 1), and
Loan_maturity (model 2) regressions, respectively.
Due to the missing values of Spread, the sample size of the model 3 reduced to 1,367 loans. In the model 3 where Spread is the dependent variable, the coefficient of the interaction term, Mandatory_Adopter* Post_mandatory, is positive but not statistically significant (coef.= 0.012; t-value= 1.13). In sum, these empirical results are consistent with Melnik and Plaut’s argument, suggesting that a debt contract offered by lenders following mandatory IFRS reporting becomes small loans, shorter-maturity loan, and higher loan rates.
[Insert Table 8]
7.3 Using country median-adjusted variables to control for country effects
While my hypothesis test 4 uses country-level institution variables (Common_law or Creditor_right) to control for country effects, I repeat my hypotheses 1~3 to include the within-country median-adjusted transformation of all continuous variables in equation (1)~(3). Specifically, I take the difference between the raw values and their medians within each country and then reestimate equation (1)~(3) using these within-country median-adjusted variables. This method can control for country-specific factors and mitigate problems of omitted correlated variables (Kim et al. [2011]). Untabulated results are identical to those reported in table 3~5. Thus, the results of my hypotheses 1~3 are not sensitive to country-specific effects. Besides, I also include the GDP per capita in year t in all my empirical models to control the country-level effects and all results remain unchanged.
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7.4 Excluding the outlier effects
In order to remove the influence of extreme observations, I include a contemporaneous variable Market Benchmark defined as yearly median (or yearly mean) of the dependent variable from observations in countries and repeat my analyses for hypothesis1~3. This analysis finds untabulated results are identical to those reported in table 3~5. Thus, my conclusion is not sensitive to extreme observations.
8. Conclusion
In this dissertation, I examine whether and how the mandatory IFRS adoption influences syndicate ownership structure and debt contractual terms in the syndicated loan market. Analyzing a large number of cross-country syndicated loan agreements during 2000 through 2009, I find that after a borrower adopts mandatory IFRS reporting, the proportion of the loan retained by syndicate lead arrangers increases and foreign lenders are relatively less likely to be involved in syndicated loan deals.
Finally, I find that syndicate lenders are less likely to use financial covenants in debt agreements after the mandatory IFRS adopting.
Overall, my findings suggest that the effects of information perspective between the IFRS adoption and the syndicate structure and the use of financial covenants are offset by the effects of contracting perspective. And these results are in line with the argument by Schipper [2003]. Specifically, the adoption of a principles-based accounting system (e.g., IFRS), characterized by limited interpretation and implementation guidance, increases the difference in professional judgment among debt contracting parties, which in turn reduces lenders’ and borrowers’ demand for accounting information in signing debt contracts.
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IFRS reporting on syndicated loan deals are not even distributed across countries and firms and consider two characteristics that could potentially change in the relative effect of mandatory IFRS on syndicate loan structure and the use of financial covenants: a country’s legal original, and the country-level enforcement regimes.Empirical results show that a higher holding ownership by lead arrangers, less incentive for foreign lenders and less use of financial covenant due to IFRS adopting is less pronounced in common-law countries (or in the higher credit right countries).
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