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The Role of Capital Expenditure Forecasts in Debt Contracting

  • Dr. Zhongwen Fan
  • 2019.11.14
  • Event
Speaker: Dr. Zhongwen Fan (The University of Hong Kong)

Topic:

The Role of Capital Expenditure Forecasts in Debt Contracting

 

Time&Date: 

 10:00-11:15 am, 2019/11/22 (Friday)

Venue:

 Room 619, Teaching A

Speaker:

Dr. Zhongwen Fan (The University of Hong Kong)

Abstract:

This study examines whether firms issue capital expenditure forecasts as a commitment to not engage in expropriation of lenders through opportunistic investment activities. We find that firms with higher leverage and lower credit quality are more likely to issue capital expenditure forecasts and to deviate less from the forecasts. Furthermore, for firms that issue capital expenditure forecasts, investment efficiency is greater and loan spreads are lower, and these associations are stronger when the forecasts are more credible. We do not find similar results for earnings forecasts. These results suggest that firms use capital expenditure forecasts as a commitment mechanism to reduce contracting costs with creditors.