Private Lending and Preferential Treatment in Earnings Conference Calls

We investigate whether firms provide preferential treatment to lender-affiliated analysts (i.e., analysts from brokerage houses affiliated with the firms’ lender) during the question-and-answer session in earnings conference calls. We find robust evidence that firms exercise discretion to let lender-affiliated analysts participate earlier in earnings conference calls before loan initiation than non-lender-affiliated analysts, especially for firms with more informative conference calls. We further find that management has more positive tones and answers questions more effectively to lender-affiliated analysts. However, we find no evidence that these analysts’ questions are different from other analysts. In addition, loans tend to have lower spreads, higher loan amounts and an increased probability of future relationship loans if borrowers provide preferential treatment to lender-affiliated analysts. Our results highlight an unexamined role that earnings conference calls play in the debt market to send a more credible public signal that facilitates private communication to lenders through preferential treatment to lender-affiliated analysts.