Does Information Technology Reputation Affect Bank Loan Terms?

Abstract

The aim of this study is to provide a systematic analysis of the effect of information technology (IT) reputation (i.e., the accumulation of public recognition of the quality of a firm’s IT capability) on bank loan contracting. More specifically, we are interested in the effect of IT reputation on the interest rate charged, collateral requirement, covenants, and number of lenders in syndicated loans. To study the effect of IT reputation on loan contracts, we analyzed 4,145 loan facility-years for borrowers with superior IT reputation in the year before the loan versus borrowers with no IT reputation. Our results indicate that firms that have appeared five consecutive years in the prestigious annual Information week 500 list of America’s most IT innovative firms, a proxy for superior IT reputation, are more likely to be charged a lower interest rate, face less covenant restrictions, and have a have a higher number of participating banks in their loans.