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Does corporate lobbying activity provide useful information to credit markets?
- Source :
- Journal of Corporate Finance. 50:128-157
- Publication Year :
- 2018
- Publisher :
- Elsevier BV, 2018.
-
Abstract
- Although corporate lobbying can be motivated for numerous reasons, much of corporate lobbying is aimed to secure public subsidies for the firm's high-risk R&D investment, which aggravates the shareholder-creditor conflict. This paper examines how creditors respond to the firm's lobbying that pursues R&D subsidies. Using syndicated bank loan data, we show that R&D-targeted lobbying activity aggravates shareholder-debtholder conflicts and results in debt rationing, shorter debt maturity, and larger loan spreads. We find weak evidence that creditors also impose tighter covenants. We also show that these effects are generally increasing in the firm's R&D intensity. These results are robust to instrumental variable estimations that endogenizes the decision to lobby by instrumenting cost of lobbying with the number of Electoral College representation in the firm's headquarters state. Further analyses show that R&D-targeted lobbying activity is positively related to the value of equity, suggesting that costs of creditor-imposed restrictions do not dominate the benefits of R&D-targeted lobbying. Overall, our findings suggest that the firm's lobbying activity provides useful incremental information to creditors in resolving informational and adverse selection problems in lending transactions.
- Subjects :
- 040101 forestry
Economics and Econometrics
050208 finance
Capital structure
Creditor
Strategy and Management
media_common.quotation_subject
05 social sciences
Rationing
Equity (finance)
Adverse selection
Subsidy
04 agricultural and veterinary sciences
Monetary economics
Loan
Debt
0502 economics and business
0401 agriculture, forestry, and fisheries
Business
Business and International Management
Finance
media_common
Subjects
Details
- ISSN :
- 09291199
- Volume :
- 50
- Database :
- OpenAIRE
- Journal :
- Journal of Corporate Finance
- Accession number :
- edsair.doi...........da03c07dbbfddaf75b7a7dce5fd3b291