Are banking and accounting expertise on the audit committee related to bank loan terms?

The extant literature reveals that audit committee (AC) members with industry expertise can enhance the AC's effectiveness in monitoring the financial reporting process. In this study, we focus on AC banking and accounting expertise and examine their effects on bank loan contracting, respective...

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Bibliographic Details
Published in:The Journal of corporate accounting & finance 2023-01, Vol.34 (1), p.191-213
Main Authors: Liu, Pei‐Yi, Chin, Chen‐Lung
Format: Article
Language:English
Subjects:
accounting expertise
audit committee
Audit committees
bank loans
banking expertise
Effectiveness
Financial reporting
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Summary:The extant literature reveals that audit committee (AC) members with industry expertise can enhance the AC's effectiveness in monitoring the financial reporting process. In this study, we focus on AC banking and accounting expertise and examine their effects on bank loan contracting, respectively. We find that banks offer more favorable price term (i.e., interest rate) and non‐price terms (i.e., lower likelihood of providing collateral, more financial covenants, and longer maturity) to borrowers whose AC members have banking or accounting expertise. Second, we find that the association between AC expertise and loan terms is driven more by banking expertise, either alone or in conjunction with accounting expertise, than by accounting expertise alone. The results are robust to a battery of robustness tests. Overall, our results suggest that banks value borrowers’ AC banking experts as well as accounting expertise when designing loan terms.
ISSN:1044-8136
1097-0053
DOI:10.1002/jcaf.22590