WP 2013-05 Accounting Comparability and Loan Contracting
ABSTRACT. This study examines whether accounting comparability is associated with the contracting cost of private loans. Using a sample of U.S. public firms from the years 1982 to 2009, we find strong evidence that accounting comparability is significantly negatively associated with private loan interest spread, consistent with the view that accounting comparability facilitates information processing by lenders. The findings are robust to alternative model specifications and estimation methods. We also find that the negative association between comparability and private loan spread is stronger for borrowers without Standard & Poor’s credit ratings and borrowers with non-collateralized loans. Further analyses show that accounting comparability is significantly positively associated with the number of lenders and negatively associated with the share of loan held by lead lender(s), confirming our main evidence of the relationship between accounting comparability and loan contracting cost.