Editor’s Note: The following post comes to us from Jeong-Bon Kim, Professor of Accountancy at City University of Hong Kong; Byron Song of the Department of Accounting at Concordia University; and Liandong Zhang of the Department of Accountancy at City University of Hong Kong.
In our paper, Internal Control Weakness and Bank Loan Contracting: Evidence from SOX Section 404 Disclosures, forthcoming in The Accounting Review, we compare various features of loan contracts between firms with ICW and those without ICW. To provide evidence of the impact of ICW on various features of loan contracts, we construct a sample of 3,164 loan facility–years for borrowers that filed SOX 404 disclosures with the SEC during 2005–2009. We then compare various features of loan contracts with ICW borrowers with those with non-ICW borrowers, after controlling for borrower- and loan-specific characteristics deemed to affect the contract terms.