Financial Restatement And Bank Loan Contracting

The financial statements which is used by listed company disclose the companyfinancial position, operating results and cash flow information carriers, it is an importantmeans for investors and creditor to obtain company information. Since the efficient markethypothesis has been proposed, efficient and reliable accounting information quality hasbeen regarded as the key to ensuring the healthy development of securities market. Only toensure a true, complete and timely information disclosure, it may contribute to makingcorrect decisions of the users of financial statements. But in recent years a number offinancial restatements by listed companies often appears and it becomes more serious. Thisaroused the wide attention of foreign scholars. From different angles, they study the impactafter restatement announcement, and whether the market is able to identity this behavioreffectively. To respond to this phenomenon in foreign capital markets mature. in recentyears There is a strange phenomenon that China’s listed company frequently issuescorrected or explanation announcement after annual reports announcement in order toexplain the wrong and omission in the annual report, which is called "annual report patch".Listed company’s the behavior of correcting annual report of can be said to be the financialrestatement with Chinese characteristics, which severely challenges to China’s capitalmarket information disclosure environment.a lot of domestic scholars have given extensiveattention to it.Drawing on a large number of relevant theoretical and empirical research of domesticand foreign scholars and connecting with a special system of Chinese background, Thispaper is the preceding literature standing on the perspective of creditors in china to studythe effect of financial restatement on bank loan Contracting. we selected the company inShanghai and Shenzhen A—share listed companies which issued corrected or explanationannouncement after annual reports announcement between Jan.1,2008to Dec.31,2010asinitial samples. And further from the initial sample of companies we selected debtcovenants data related to listed companies. Finally, we adopted a multiple linear regressionand multiple logistic regression methods to explore the effect of financial restatement onloan contracting. the main conclusions of this paper is as follows:First, our Study found that there will be a significant change on bank debt contractbefore and after listed company’s financial restatement. Compared with loans initiatedbefore restatement, loans initiated after restatement have significantly higher spreads,shorter maturities, and more covenant restrictions. Second, after making further study wefound that in considering the nature of property rights cases, the private holding companiesdo not bear higher interest rates increase or a shorter loan term and more stringentprotective provisions of the loan, comparing with state-owned listed companies afterfinancial restatement. These results suggest that Chinese banks are able to play a effective role on Debt Monitoring.This article not only enriches domestic researching on the contentof the financial restatement and broadens the scope of application of the debt monitoringtheory, but also provide new evidence for the evaluation of China’s commercial bankreform.