This paper examines the impact of product failures on the pricing of bank loans using hand-collected data on product recalls. We find that banks tend to charge higher loan prices for firms involved in product recalls. Uncertainty as to a recall's ultimate impact on a firm's credit risk conditions banks’ loan-pricing reaction, as reflected in a firm's default risk, information asymmetry and governance deficiency, and by the damage to its reputation, arising from the recall. Further analysis reveals that the impact of product recalls on the cost of debt is stronger in firms that rely more extensively on bank financing, firms with more severe recalls, and those adopting passive recall strategies. However, medical device firms, for which product recalls are often considered a normal part of doing business, do not experience a rise in their bank financing costs following a recall. Finally, we find that recall firms experience a deterioration in their financial performance and a rise in product lawsuits post recall. Overall, our findings shed new light on the economic consequences of product failures through the lens of creditors.

We examine whether auditors share private information about some clients in their portfolio to benefit other clients (i.e., brokerage houses). This is a salient issue in China, where there are concerns about auditors leaking information to related parties, and where we observe variation in connectedness between brokerage houses and companies through shared auditors. We document that brokerage houses that share an auditor with a company issue comparatively more accurate earnings forecasts for that company. Next, cross‐sectional variation in forecast accuracy is associated with several proxies for brokerage houses' and auditors' costs and incentives to share information (e.g., investor protection, media coverage, public listing status, and the client's economic importance). Finally, auditors are more likely to secure future audits from IPO deals sponsored by brokerage house clients with higher forecast accuracy. Collectively, our evidence is suggestive of auditors sharing private information with brokerage houses in anticipation of reciprocity in the form of lucrative future engagements.