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6. Conclusion
This thesis explores whether long-term banking relationships and bargaining power are important determinants of performance-pricing covenants (PPC) inclusions in syndicated loan contracts.
Sharpe (1990) and Rajan (1992) argue that hold-up problem imposed by the lender is one cost of relationship lending. Von Thadden (1995) shows that pre-specifying loan contract terms can be an efficient way to mitigate hold-up problems in long-term banking relationships. An example is performance-pricing covenants (PPC), which pre-specifies loan contract terms in prevention of events that would otherwise trigger debt renegotiations. In this paper, we test the hypothesis that performance-pricing covenants are used because of potential hold-up problems in long-term banking relationships.
Consistent with this hypothesis, we find that interest-increasing PPC is more common when hold-up problem exists in relationship lending. This is especially the case if borrowers are opaque and have fewer financing alternatives, both of which imply a greater potential for hold-up. However, we do not have enough evidence that the use of interest-decreasing PPC is associated with the opaqueness of borrower. In syndicated deals, relationship lenders as lead arrangers should find it less beneficial to hold-up borrowers as the gains from hold-up would have to be shared with the other syndicate members. This reduces the need for interest-increasing PPC. Indeed, we find that the presence of a lending relationship between borrowers and lead arrangers reduces the use of interest-increasing PPC.
In addition, we find that the use of interest-decreasing PPC is more likely when lead arrangers rank low in loan market league table. The result is consistent with our expectation that lenders with less market share may try to use more
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interest-decreasing PPC to attract borrowers in relationship loans.
In conclusion, we find that hold-up and bargaining power are important determinants to include different types of performance-pricing covenants.
References
Adam, T., D. Streitz,. 2014. Hold-Up and the Use of Performance-Sensitive Debt, Working Paper.
Cai, J., Mattes, J. A., & Steffen, S. 2012. Performance Pricing versus Financial Covenants: Agency Costs and Incentive Alignment, Working Paper.
Manso, G., B. Strulovici, and A. Tchistyi. 2010. Performance-sensitive debt. Review of Financial Studies 23 (5), 1819–1854.
Asquith, P., A. Beatty, and J. Weber .2005. Performance pricing in bank debt contracts.
Journal of Accounting and Economics 40, 101–128.
Roberts, M. R., & Sufi, A. 2009. Control rights and capital structure: An empirical investigation. The Journal of Finance, 64(4), 1657-1695.
Demiroglu, C., & James, C. M. 2010. The information content of bank loan covenants.
Review of financial Studies, 23(10), 3700-3737.
Murfin, J. 2012. The Supply‐Side Determinants of Loan Contract Strictness. The Journal of Finance, 67(5), 1565-1601..
Renzis, De T., Francis, B., Hasan, I., 2010. Performance Pricing Provisions in Bank Loans: A Cross-Country Analysis, Working Paper.
Adam, T., V. Burg, T. Scheinert, and D. Streitz. 2014.Managerial Optimism and Debt Contract Design, Working Paper.
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Performance Pricing Covenants and Corporate Loan Spreads. Working Paper.
Bhanot, K. and A. S. Mello .2006. Should corporate debt include a rating trigger?
Journal of Financial Economics 79, 69–98.
Bharath, S., S. Dahiyab, A. Saunders, and A. Srinivasan .2007. So what do i get? the bank’s view of lending relationships. Journal of Financial Economics 85, 368–419.
Bharath, S. T., S. Dahiya, A.Saunders, and A.Srinivasan .2011. Lending relationships and loan contract terms. The Review of Financial Studies 24, 1142–1203.
Dass, N. and M. Massa .2011. The impact of a strong bank-firm relationship on the borrowing firm. Review of Financial Studies 24, 1204–1260.
Degryse, H.and S.Ongena .2005. Distance, lending relationships, and competition.
The Journal of Finance 60, 231–266.
Agarwal, S. and R. Hauswald .2010. Distance and private information in lending.
Review of Financial Studies 23, 2757–2788.
Koziol, C.and J. Lawrenz .2010. Optimal design of rating-trigger step-up bonds:
Agency conflicts versus asymmetric information. Journal of Corporate Finance 16, 182–204.
Rajan, R. G. 1992. Insiders and outsiders: The choice between informed and arm’s length debt. The Journal of Finance 47, 1367–1400.
Ross, D. G.2010. The “dominant bank effect:” how high lender reputation affects the information content and terms of bank loans. Review of Financial Studies 23, 2730–2756.
Tchistyi, A., D. Yermack, and H.Yun .2011. Negative hedging: Performance-sensitive debt and ceos’ equity incentives. Journal of Financial and Quantitative Analysis 46, 657–686.
Von Thadden, E.-L. 1995.Long-term contracts, short-term investment and monitoring.
Review of Economic Studies 62, 557–575.
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Table 1：PPC Use Percentage by Financial Institution Types
This table reports the financial institution types and frequencies of using PPC in our sample of PPC from 1993 to 2010
Observations Frequency
Panel A：Traditional Bank
Mixed 10,822 12.83%
Interest-Increasing 1,738 2.06%
Interest-Decreasing 8,218 9.74%
Straight debt 63,588 75.37%
Total 84,366 100%
Panel B： Finance Company
Mixed 797 6.56%
Interest-Increasing 215 1.77%
Interest-Decreasing 934 7.69%
Straight debt 10,201 83.98%
Total 12,147 100%
Panel C：Investment Bank
Mixed 390 7.1%
Interest-Increasing 100 1.82%
Interest-Decreasing 561 10.22%
Straight debt 4,440 80.86%
Total 5,491 100%
Panel D：Insurance Company
Mixed 5 5.1%
Interest-Increasing 0 0.00%
Interest-Decreasing 0 0.00%
Straight debt 93 94.9%
Total 98 100%
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Table 2：Total Lending Amount from 1990 to 2010 in USA
This table reports the leader arranger lending Amount from 1990 to 2010 in USA loan market from LPC database.
Domestic Foreign
Year Lending Amount (US$) % Lending Amount (US$) % 1990 184,924,162,080 83.29% 37,107,015,213 16.71%
1991 204,811,925,778 85.24% 35,456,873,005 14.76%
1992 272,939,025,109 80.89% 64,494,937,467 19.11%
1993 408,856,954,618 83.86% 78,705,938,032 16.14%
1994 636,063,781,563 86.48% 99,422,063,169 13.52%
1995 691,299,386,499 81.91% 152,688,680,677 18.09%
1996 817,601,909,415 83.81% 157,915,329,096 16.19%
1997 1,114,368,788,896 88.78% 140,819,539,872 11.22%
1998 781,772,895,703 87.50% 111,719,401,238 12.50%
1999 1,018,946,314,565 90.21% 110,535,616,900 9.79%
2000 1,187,757,315,379 90.35% 126,866,081,210 9.65%
2001 1,168,635,591,166 89.76% 133,308,219,513 10.24%
2002 1,026,780,937,960 90.05% 113,399,107,802 9.95%
2003 960,754,356,825 85.63% 161,266,211,125 14.37%
2004 1,353,641,214,438 86.22% 216,348,582,061 13.78%
2005 1,603,230,336,393 83.66% 313,068,891,223 16.34%
2006 1,808,901,674,294 79.23% 474,274,635,750 20.77%
2007 2,045,298,824,651 79.08% 541,067,529,882 20.92%
2008 882,358,253,169 76.40% 272,518,610,702 23.60%
2009 592,574,665,318 70.13% 252,342,793,694 29.87%
2010 684,779,624,379 66.96% 337,917,742,584 33.04%
Total 19,446,297,938,199 83.18% 3,931,243,800,217 16.82%
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Table 3：PPC Use Percentage between Domestic and Foreign Bank
This table reports the use percentage of PPC between Domestic and Foreign Bank in our sample of PPC from 1993 to 2010Observations Frequency
Panel A：Domestic financial institution
Mixed 9,652 11.5%
Interest-Increasing 1,707 2.03%
Interest-Decreasing 8,176 9.74%
Straight debt 64,407 76.73%
Total 83,942 100%
Panel B：Foreign financial institution
Mixed 1,228 8.26%
Interest-Increasing 240 1.62%
Interest-Decreasing 1,152 7.76%
Straight debt 12,233 82.36%
Total 14,853 100%
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Table 4: Five largest arrangers of USA from 1993 to 2010
13Year Top 1 Top 2 Top 3 Top 4 Top 5
1993 Chemical Bank Chase Manhattan Morgan Guaranty
Trust Citigroup Bank of America
1994 Chemical Bank Citigroup Chase Manhattan Morgan Guaranty
Trust NationsBank
1995 Chemical Bank Citigroup Morgan Guaranty
Trust NationsBank Bank of America
1996 Chase Manhattan Citigroup Bank of America Chemical Bank NationsBank
1997 Chase Manhattan Citigroup Bank of America NationsBank Morgan Guaranty Trust
1998 Chase Manhattan Bank of America Citigroup Morgan Guaranty Trust
BT Alex Brown Inc Trust
1999 Bank of America Chase Manhattan Citigroup BANK ONE Morgan Guaranty Trust
2000 Chase Manhattan Bank of America Citigroup BANK ONE Credit Suisse Boston Boston
2001 JP Morgan Chase Bank of America Citigroup BANK ONE Credit Suisse Boston
2002 JP Morgan Chase Bank of America Citigroup BANK ONE Credit Suisse Boston
2003 JP Morgan Chase Bank of America Citigroup Credit Suisse
Boston BANK ONE
2004 JP Morgan Chase Bank of America Citigroup Credit Suisse
Boston Wachovia Bank
2005 JP Morgan Chase Bank of America Citigroup Deutsche Bank Wachovia Bank
2006 JP Morgan Chase Bank of America Citigroup Deutsche Bank Wachovia Bank
2007 JP Morgan Chase Bank of America Citigroup Deutsche Bank Goldman Sachs Bank NA
2008 JP Morgan Chase Bank of America Citigroup Credit Suisse
Boston Wachovia Bank
2009 JP Morgan Chase Bank of America Citigroup Wells Fargo Credit Suisse
2010 Bank of America JP Morgan Chase Credit Suisse Citigroup Deutsche Bank
13 We consider the M&A activities of the top 25 biggest banks from 1990 to 2010 in the USA.
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Table 5: Summary Statistics
This table reports summary statistics for a sample of 26,877 loan facilities by 4,930 non-financial firms between 1993 and 2010.14
Mean Median Std Min Max N
Panel A: Loan Characteristics
PPC(Accounting) 0.3 0 0.46 0 1 26,877
14 Both loan contracts with performance-pricing covenants and straight bond (loan contracts without
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Table 6: PPC Contract Types
This table reports the types and frequencies of performance-pricing provisions in our sample of PPC.
Frequency Observations
Panel A: Accounting-Based PPC
Debt-to-EBITDA 0.48 5462
User Condition
15 0.06 715Multiple16 0.01 75
Leverage 0.04 506
Senior Debt to Cash Flow 0.03 338
Fixed Charge Coverage 0.03 316
Other Accounting Measures 0.01 115
Outstanding17 0.02 234
Debt-to-Tangible Net Worth 0.01 151
Interest Coverage 0.02 283
Panel B:Rating-Based PPC
0.00Senior Debt Rating 0.28 3192
Other Credit Rating 0.00 27
Total
1.00 11414
15 User Condition is classified according to company`s financial status
16 The other financial ratios(e.g. current ratio…EBITDA..etc.)
17 Shares outstanding
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Table 7: Lending Relationships and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using rating-based or accounting-based PPC.
The dependent variable equals one if the loan contract contains a performance pricing provision on an accounting measure, two if the loan contract includes a performance pricing provision on the borrower’s credit rating, and three for non performance-pricing loan contracts (straight bond).
Marginal effect for each covariate are constructed as the difference in predicted probabilities for a particular outcome computed at their mean values holding all other covariates constant. All item are defined in the Appendix Table A.I. Standard errors are heteroskedasticity robust.*, **,***
indicate statistical significance at the 10%,5%,1% level.
(1) (2) (3)
PPC(Accounting) PPC(Rating) PPC(Accounting) PPC(Rating) PPC(Accounting) PPC(Rating)
Rel(Dummy)
0.0282***
Ln(Total Assets) -0.0253***
(0.00305)
Current Ratio 0.0138***
(0.00271) Ln(Facility Maturity) 0.0835***
(0.00478)
Ln(Facility Amount) 0.0528***
(0.00304)
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Table 8: Syndication and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed , interest- increasing ,or interest-decreasing PPC.*, **,***
indicate statistical significance at the 10%,5%,1% level.
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.154***
Rel(Dummy)* Syndication -0.146***
(0.0377)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table 9: Borrow Opacity and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing, or interest-decreasing PPC. Marginal effect for each covariate are constructed as the difference in predicted probabilities for a particular outcome computed at their mean values holding all other covariates constant. All item are defined in the Appendix Table A.I. Standard errors are heteroskedasticity robust.*, **,*** indicate statistical significance at the 10%,5%,1%level.
(A) Firm Size
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0556**
Ln(Total Assets) -0.00534*
(0.00318)
-0.00167 (0.00159)
-0.00597**
(0.00279) Rel(Dummy)* Ln(Total Assets) -0.00479
(0.00304)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
(B) Firm S&P long-term debt rating
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0307***
Rel(Dummy)* Rating -0.00158*
(0.000819)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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(C) Numbers of analyst
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0253***
Rel(Dummy)* #Analysts -0.00122*
(0.000642)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
(D) Initial Public Offering
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0156**
Rel(Dummy)* IPO 0.00772
(0.0105)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table 10: Market share and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed , interest- increasing ,or interest-decreasing PPC.*, **,***indicate statistical significance at the 10%,5%,1% level.
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0199***
Rel(Dummy)* Marketshare -0.0631
(0.106)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
Table 11: Bank Ranking and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed , interest- increasing ,or interest-decreasing PPC.*, **,***indicate statistical significance at the 10%,5%,1% level.
PPC
Mixed Increasing Decreasing
Rel(Dummy) 0.0151
Bank Ranking 0.0141***
(0.000929)
0.000540 (0.000423)
0.00453***
(0.000790)
Rel(Dummy)* Bank Ranking -0.00109
(0.00143)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Appendix
Table A.I Variable Definitions
Variables Definition
Loan Characteristics
PPC(Accounting) Performance pricing provision based on an accounting measure.
PPC(Rating) Performance pricing provision based on the firm`s credit rating.
Mixed PPC The pricing grid of PCC allows for both interest rate increases and interest rate decreases.
Increasing PPC The pricing grid of PCC allows for interest rate increases only.
Decreasing PPC The pricing grid of PCC allows for interest rate decreases only.
Facility Amount Facility amount in million USD Facility Maturity Time to maturity in Months.
All-in-drawn Spread Initial all in drawn spread above LIBOR.
Term Loan A dummy variable which equals one if the loan tranche is specified as
“ Term Loan”
Secured A dummy variable which equals one if the loan is secured.
Syndication A dummy variable which equals one if the distribution method of the loan tranche is defined as “Syndication” according to LPC.
Sole Lender A dummy variable which equals one if the
Purpose: General A dummy variable which equals one if the loan purpose is specified as
“ corporate purpose”
Purpose: Refinance A dummy variable which equals one if the loan purpose is specified as
“ debt repayment”
Purpose: Takeover A dummy variable which equals one if the loan purpose is specified as
“ takeover” or“ acquisition”
Purpose: Working Capital A dummy variable which equals one if the loan purpose is specified as
“ working capital”
Borrower Characteristics
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#Analysts The number of analysts covering the borrower at the time of the loan origination.
IPO A dummy variable which equals one if the borrower has initial public offering at the time of the loan origination.
MarketShare Firm sales over the total sales in its own industry (we classify the industry by the first two number of SIC code).
Total Assets Firm`s total assets in million USD.
Leverage Long-term debt divided by total assets.
Market-to-Book Market value of the firm divided by the book value of assets.
Tangibility Net Property plant and equipment divided by total assets.
Profitability EBITDA divided by total assets.
Current Ratio Current assets divided by current liabilities.
Rating A rating score of the borrower which ranges from 0 to 22 according to the S&P long-term debt rating.
Rating AAA…C(or below) A dummy variable which equals one if the borrower has an S&P rating of AAA…C (or below) at the time of the loan issue.
Rated A dummy variable which equals one if the borrower has an S&P rating at the time of the loan issue.
Lender Characteristics
Bank Ranking A ranking score of the arranger leader bank which ranges from 0 to 10 according to the league table which match the facility start year.
Relation Lending Proxies
Rel(Dummy) A dummy variable which equals one if the firm borrowed from at least one of the lead lenders in the five years before the present loan.
Rel(Number) The number of loans from the same lead bank(s) over the total number of loans issued in the five years before the present loan.
Rel(Amount) The dollar value of loans from the same lead bank(s) over the total dollar value of loans issued in the five years before the present loan.
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Table A.II. Borrow Opacity and the Use of Performance-Pricing Covenant (using Rel(Number) as proxy for relationship strength)
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing, or interest-decreasing PPC. We use the other measures of relationship strength, Rel(Number) to evaluate the regressions .Marginal effect for each covariate are constructed as the difference in predicted probabilities for a particular outcome computed at their mean values holding all other covariates constant. All item are defined in the Appendix Table A.I. Standard errors are heteroskedasticity robust.*, **,*** indicate statistical significance at the 10%,5%,1% level.
Ln(Total Assets)
PPC
Mixed Increasing Decreasing
Rel(Number) -0.0639
Ln(Total Assets) -0.00839***
(0.00304)
-0.00281*
(0.00155)
-0.00763***
(0.00270) Rel(Number)* Ln(Total Assets)
0.0143**
(0.00604)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
Rating
PPC
Mixed Increasing Decreasing
Rel(Number) 0.0261*
Rel(Number)* Rating
0.001
(0.002)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Mixed Increasing Decreasing
Rel(Number) 0.0466*** Rel(Number)* #Analysts
-0.00267*
(0.00138)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
IPO
PPC
Mixed Increasing Decreasing
Rel(Number) 0.0518***
Rel(Number)* IPO
-0.0361*
(0.0210)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
‧ (using Rel(Amount) as proxy for relationship strength)
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing ,or interest-decreasing PPC. We use the other measure of relationship strength, Rel(Amount) to evaluate the regressions . Marginal effect for each covariate are constructed as the difference in predicted probabilities for a particular outcome computed at their mean values holding all other covariates constant. All item are defined in the Appendix Table A.I. Standard errors are heteroskedasticity robust.*, **,*** indicate statistical significance at the 10%,5%,1% level.
Ln(Total Assets)
PPC
Mixed Increasing Decreasing
Rel(Amount) -0.0180
Ln(Total Assets) -0.00782**
(0.00306)
-0.00275*
(0.00156)
-0.00754***
(0.00271) Rel(Amount)* Ln(Total Assets)
0.00728
(0.00528)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
Rating
PPC
Mixed Increasing Decreasing
Rel(Amount) 0.0318**
Rel(Amount)* Rating
-9.41e-05
(0.00137)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Mixed Increasing Decreasing
Rel(Amount) 0.0444*** Rel(Amount)* #Analysts
-0.00272**
(0.00121)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
IPO
PPC
Mixed Increasing Decreasing
Rel(Amount) 0.0462***
Rel(Amount)* IPO
-0.0291
(0.0184)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table A.IV. Syndication and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing ,or interest-decreasing PPC. We use the other measures of relationship strength, Rel(Number) and Rel(Amount) to evaluate the regressions .*, **,*** indicate statistical significance at the 10%,5%,1%
level.
PPC
Mixed Increasing Decreasing
Rel(Number) 0.172*** Rel(Number)* Syndication
-0.151***
(0.0513)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
PPC
Mixed Increasing Decreasing
Rel(Amount) 0.163*** Rel(Amount)* Syndication
-0.145***
(0.0487)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table A.V. Market share and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing ,or interest-decreasing PPC. We use the other measures of relationship strength, Rel(Number) and Rel(Amount) to evaluate the regressions .*, **,*** indicate statistical significance at the 10%,5%,1%
level.
PPC
Mixed Increasing Decreasing
Rel(Number) 0.0362***
Rel(Number)* Marketshare
-0.0698
(0.215)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
PPC
Mixed Increasing Decreasing
Rel(Amount) 0.0335***
Rel(Amount)* Marketshare
-0.0834
(0.190)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table A.VI. Bank Ranking and the Use of Performance-Pricing Covenant
This table reports the marginal effects of multinomial logit regressions to evaluate the likelihoods of using mixed, interest- increasing, or interest-decreasing PPC. We use the other measures of relationship strength, Rel(Number) and Rel(Amount) to evaluate the regressions .*, **,*** indicate statistical significance at the 10%,5%,1%
level.
PPC
Mixed Increasing Decreasing
Rel(Number) -0.0156
Bank Ranking 0.0131***
(0.000868)
0.000213 (0.000408)
0.00358***
(0.000733) Rel(Number)* Bank Ranking
0.00503*
(0.00269)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
PPC
Mixed Increasing Decreasing
Rel(Amount) 0.00515
Bank Ranking 0.0135***
(0.000884)
0.000235 (0.000414)
0.00385***
(0.000746) Rel(Amount)* Bank Ranking
0.00163
(0.00235)
Industry Fixed Effect Yes
Time Fixed effect Yes
Credit Rating Fixed effect Yes
Loan Purpose Fixed effect Yes
Loan Type Fixed effect Yes
Loan characteristics Yes
Borrower characteristics Yes
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Table A.VII. Increasing V.S. Decreasing (Borrower Opacity and Rel(Dummy))
In this table we use the multinomial logit regressions to compare the use of interest-increasing PPC compared to interest-decreasing PPC when Rel(Dummy) is used as proxy for relationship strength.(1) (2) (3) (4)
Ln(Total Assets) -0.0057
(0.0471) Rel(Dummy)* Ln(Total Assets) -0.031
(0.0406)
Rel(Dummy)* Rating -0.021
(0.0127)
Rel(Dummy)* #Analysts -0.0084
(0.0098)
Rel(Dummy)* IPO -0.000563
(0.152)
Borrower characteristics Yes Yes Yes Yes
Increasing V.S. Decreasing (Other Variables and Rel(Dummy))
(1) (2) (3)
Ln(Total Assets) -0.0024
(0.0448)
Bank Ranking -0.005
(0.013)
Rel(Dummy)* Syndication -0.9915***
(0.344)
Rel(Dummy)* Marketshare 2.4986
(1.9122)
Rel(Dummy)* Bank Ranking 0.0018
(0.0179)
Loan characteristics Yes Yes Yes
Borrower characteristics Yes Yes Yes
‧
Table A.VIII. Increasing V.S. Decreasing (Borrower Opacity and Rel(Number))
In this table we use the multinomial logit regressions to compare the use of interest-increasing PPC compared to interest-decreasing PPC when Rel (Number) is used as proxy for relationship strength.(1) (2) (3) (4)
Ln(Total Assets) -0.0253
(0.0457) Rel(Number)* Ln(Total Assets) -0.0365
(0.0732)
Rel(Number)* Rating 0.0077
(0.0237)
Rel(Number)* #Analysts -0.0023
(0.018)
Rel(Number)* IPO -0.6385**
(0.2777)
Borrower characteristics Yes Yes Yes Yes
Increasing V.S. Decreasing (Other Variables and Rel(Number))
(1) (2) (3)
Bank Ranking -0.0084
(0.0122)
Rel(Number)* Syndication -0.6408
(0.4961)
Rel(Number)* Marketshare 2.324
(3.3127)
Rel(Number)* Bank Ranking 0.0236
(0.0317)
Loan characteristics Yes Yes Yes
Borrower characteristics Yes Yes Yes
‧
Table A.IX. Increasing V.S. Decreasing (Borrower Opacity and Rel(Amount))
In this table we use the multinomial logit regressions to compare the use of interest-increasing PPC compared to interest-decreasing PPC when Rel(Amount) is used as proxy for relationship strength.(1) (2) (3) (4)
Ln(Total Assets) -0.024
(0.046) Rel(Amount)* Ln(Total Assets) 0.02
(0.0658)
Rel(Amount)* Rating -0.0082
Rel(Amount)* Rating -0.0082