Debt maturity dispersion and the cost of bank loans

This paper examines the relation between corporate debt maturity dispersion and the pricing and terms of bank loans. Analyzing a sample of U.S. bank loans from 2002 to 2016, we find that firms with a dispersed debt maturity structure pay a lower interest rate. The rate-reduction effect is significant only for firms without a credit rating. For these firms, spreading debt maturity dates also results in lower commitment fees, fewer covenant restrictions, and less collateral in their loan contracts. The impact of debt maturity dispersion on the pricing and structure of bank loans is stronger when borrowers have higher rollover risk or when the need for monitoring is greater. Our results suggest that dispersion in debt maturity structure mitigates the agency problem associated with shareholder–creditor conflicts by reducing rollover risk and alleviating the need for monitoring, which results in borrowers receiving more favorable terms in loan contracts.     

Collateralization,Bank Loan Rates,and Monitoring

We show that collateral plays an important role in the design of debt contracts, the provision of credit, and the incentives of lenders to monitor borrowers. Using a unique data set from a large bank containing timely assessments of collateral values, we find that the bank responded to a legal reform that exogenously reduced collateral values by increasing interest rates, tightening credit limits, and reducing the intensity of its monitoring of borrowers and collateral, spurring borrower delinquency on outstanding claims. We thus explain why banks are senior lenders and quantify the value of claimant priority.     

Tests of ex ante versus ex post theories of collateral using private and public information

Collateral is a widely used, but not well understood, debt contracting feature. Two broad strands of theoretical literature explain collateral as arising from the existence of either ex ante private information or ex post incentive problems between borrowers and lenders. However, the extant empirical literature has been unable to isolate each of these effects. This paper attempts to do so using a credit registry that is unique in that it allows the researcher to have access to some private information about borrower risk that is unobserved by the lender. The data also include public information about borrower risk, loan contract terms, and ex post performance for both secured and unsecured loans. The results suggest that the ex post theories of collateral are empirically dominant, although the ex ante theories are also valid for customers with short borrower–lender relations that are relatively unknown to the lender.     

Product market competition and the cost of bank loans: Evidence from state antitakeover laws

The extant literature documents a positive relationship between a firm’s takeover vulnerability and its agency cost of debt. Using state antitakeover laws as an exogenous measure of variation in takeover vulnerability, I investigate whether product market competition has a disciplinary effect that can lower a firm’s cost of bank loans. After taking into account the industry composition of borrowers, I find that banks charge higher spreads to borrowers that are vulnerable to takeovers, but only in concentrated industries. In the absence of disciplinary competitive pressure, the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms, firms followed by analysts, firms with existing credit ratings, non-family firms, and for borrowers with shorter maturity loans or loans with covenants and collateral in place. Taken together, the results suggest that the effect of governance on the cost of financing is not homogenous across all industries, and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems.     

Legal Restrictions in Personal Loan Markets

This study examines the pricing of personal loans in the form of second mortgages to determine whether state-specific default laws have an effect on the availability and cost of that debt. We examine the pricing of loans to higher risk borrowers and whether borrowers in states that limit lender ability to seek default remedies pay higher credit costs. Our results indicate that, for the most part, lenders rationally price loans to higher risk borrowers. However, when we focus on borrowers with low credit scores, the results indicate that mean actual loan rates are higher than those predicted by our model. The results also indicate that state-specific default laws have an effect on the price of credit. Finally, the results show that there is a greater degree of error in the pricing of second mortgage loans to borrowers with low credit scores than to borrowers with high credit scores.     

Institutional Differences and International Private Debt Markets: A Test Using Mandatory IFRS Adoption

Institutional differences between countries result in additional information risks between borrowers and lenders in cross‐border private loans. This study examines the effect of these information risks on the structure of optimal debt contracts in international (cross‐border) versus domestic private debt markets. Using mandatory IFRS adoption as an indicator for institutional changes that reduced differences between countries, I compare attributes of international versus domestic loans before and after IFRS adoption. I find that, in the pre‐IFRS period, international loans are associated with a higher credit spread, a weaker relationship between the bank and the borrower, a more diffuse loan syndicate, and less reliance on accounting‐based covenants than domestic loans. These results are consistent with incremental information risks in international debt markets that make it more costly for lenders to screen and monitor borrower credit quality, resulting in a more arm's‐length relationship between borrowers and lenders. Many of these associations attenuate after IFRS adoption, suggesting that the pre‐IFRS differences in contract terms are driven by incremental information risks related to institutional differences between countries. My findings imply that incremental information risks result in a different optimal contract in international debt contracts compared to domestic debt contracts.     

Collateral and Competitive Equilibria with Moral Hazard and Private Information

The authors examine equilibrium credit contracts and allocations under different competitivity specifications and explain the economic roles of collateral under these specifications. Both moral hazard and adverse selection are considered. The principal message is that how a competitive equilibrium is conceptualized significantly affects the characterization of equilibrium credit contracts. Specifically, some well-known results in the rationing literature are shown to rest delicately on the adopted equilibrium concept. Two somewhat surprising results emerge. First, high-quality borrowers with unlimited collateral may be priced out of the market despite the bank having idle deposits. Second, high-quality borrowers may put up more collateral.     

Currency-Induced Credit Risk in a Dollarized Economy

We analyze the effects of exchange rate fluctuations on corporate credit default in a dollarized economy. The application, before an exogenous exchange rate shock, of a new regulation concerning currency-induced credit risk (CICR) in the Peruvian banking system created natural conditions for a comparison between exposed and unexposed corporate borrowers. We use firm-level data to find that CICR and debt dollarization have opposite effects on credit risk. While CICR increases default, debt dollarization reduces it. Our results suggest that banks transfer exchange risk as a hedging mechanism by lending to such borrowers in dollars only.     

Collateral pricing

We examine how collateral affects the cost of debt capital. Using a novel data set of secured debt issued by U.S. airlines, we construct industry-specific measures of collateral redeployability. We show that debt tranches that are secured by more redeployable collateral exhibit lower credit spreads, higher credit ratings, and higher loan-to-value ratios—an effect which our estimates show to be economically sizeable. Our results suggest that the ability to pledge collateral, and in particular redeployable collateral, lowers the cost of external financing and increases debt capacity.     

Control Rights and Capital Structure: An Empirical Investigation

We show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy. Net debt issuing activity experiences a sharp and persistent decline following debt covenant violations, when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit. The effect of creditor actions on debt policy is strongest when the borrower's alternative sources of finance are costly. In addition, despite the less favorable terms offered by existing creditors, borrowers rarely switch lenders following a violation.     

Targeted by an activist hedge fund,do the lenders care?

Do banks worry about expropriation when an activist hedge fund targets their borrowers or are they reassured that their borrowers will perform better after such targeting? We study 1435 events during the 1996–2013 period in which an activist targeted a US corporation, to examine what happens to loan contract terms post-targeting. We present two new results. First, we show that when a firm is targeted by an activist hedge fund, the lenders of that firm charge a significantly higher rate on future loans and demand collateral more frequently than the loans made to risk- and industry-matched non-targeted firms. Second, we find that this increase in loan rate and the likelihood of collateral demand is limited only to those targets that experience a large positive announcement return when the news of an activist's involvement is first announced. We argue that higher interest rates and greater collateral requirements reflect the increased credit risk for these borrowers due, in part, to the possibility of wealth expropriation by the shareholders. Thus, we provide empirical evidence that an increase in equity value due to an activist's targeting may partially be due to wealth expropriation from creditors.     

Do Business Borrowers Benefit from Bank Bailouts?: The Effects of TARP on Loan Contract Terms

We investigate benefits to business borrowers from bank bailouts, specifically the Troubled Asset Relief Program (TARP). Applying difference‐in‐difference methodology to loan‐level data, we find more favorable borrower contract terms in five dimensions, spread, amount, maturity, collateral, and covenants, suggesting increased credit supply at the intensive margin by bailed‐out banks. Findings are robust to dealing with endogeneity and other issues. Riskier borrowers benefit more, consistent with moral hazard exploitation. Small and unlisted borrowers benefit less, suggesting fewer benefits for financially constrained firms. Benefits accrue to both relationship and nonrelationship borrowers. Results contribute to the research and policy debates on bank bailouts.     

Collateral-based lending in emerging markets: Evidence from Thailand

This paper examines the role and determinants of collateral in emerging markets compared to mature ones. Analyzing a data set of 560 credit files of Thai commercial banks, we find that both the incidence and degree of collateralization are higher there than in developed markets. Thai banks use collateral primarily to reduce the higher credit risks of small and relatively young firms. Long credit relationships do not reduce collateral requirements by lowering information asymmetry. Market imperfections result from housebanks demanding higher collateral than non-housebanks, suggesting a lock-in effect for their borrowers, and from larger banks realizing higher collateral claims.     

Financial statement comparability,state ownership,and the cost of debt: Evidence from China

This study examines whether financial statement comparability (comparability) reduces credit risk and lowers the cost of debt. We hypothesize and document that higher comparability reduces information asymmetry and noise in debt contracting and makes monitoring of managerial activities easier, which reduces the cost of debt. However, the effect of comparability on the cost of debt for state-owned enterprises (SOEs) is insignificant. The results also suggest that competitive pressure and audit quality complement the relationship between comparability and the cost of debt. Our findings remain robust after controlling for endogeneity and in numerous empirical specifications. Overall, our results indicate that greater comparability improves credit decisions of the lenders and also benefits borrowers by reducing the financing cost.     

The Determinants of Private Debt Holdings: Evidence From the Life Insurance Industry

Life insurers hold the majority of private debt. Lenders in the private debt market must have the ability to evaluate the credit quality of borrowers and to perform ongoing risk monitoring. The purpose of this study is to examine the determinants of private debt holdings in the life insurance industry. The results suggest that larger insurers, insurers with higher financial quality, mutual insurers, publicly traded insurers, insurers facing stringent regulation, and insurers with greater cash holdings are more prevalent lenders in the private debt market.     

银行信贷中会计信息的使用情况调查与分析

贷款人对企业财务信息的关注不只是会计信息决策有用性的理论问题, 更重要的是银行如何加强对贷款风险有效控制的一个非常实际的问题。本项工作通过问卷调查的方式, 了解银行授信过程中会计信息的应用情况及银行对非财务信息的使用情况。我们发现, 银行对长短期借款、主营业务收入、资产负债率、流动比率和速动比率等财务信息高度重视, 对有助于进一步判别企业潜在风险的报表附注信息也比较重视。     

Barter Credit: Warehouses as a Contracting Technology

A large Brazilian agribusiness lender introduces a new contracting technology: grain warehouses. Using runner-up warehouse locations as a control group, I find that construction of these warehouses permits a new debt contract, namely, barter credit repayable in grain. This contract increases borrowers' debt capacity and reduces borrowing costs. The effects are stronger when grain price risk is higher, for municipalities with weaker courts, and for financially constrained borrowers. These findings are consistent with barter credit reducing financial market imperfections by mitigating borrowers' output price risk.     

公开竞标的贷款定价方式对P2P借贷平台的优化作用

P2P借贷是一种金融创新模式,将互联网技术与民间借贷相结合。互联网信贷的巨大需求推动P2P借贷平台的爆发式发展,而P2P借贷发展核心的两个问题是信用评级和风险定价。由于我国未完全实现利率市场化,P2P平台采用的是量化借款人信息的方式计算贷款利率。信息不对称导致P2P平台的贷款利率不能充分反映借款人风险,同时造成信誉良好的借款人不能获得低成本的贷款。文章利用拍卖机制模型对公开竞标的贷款定价方式进行探究,认为公开竞标方式可以改善信息披露,降低借款人的成本,借款人和投资人在公开竞标的贷款定价方式下都可以获得灵活的选择空间,从而提高借贷成功的比例。     

The Impact of Durable Relationship with Banks when Crisis Hits

Firms develop relationships with their banks in order to ensure access to financing when credit conditions deteriorate in time of crisis. I investigate the effect of bank-firm relationships in Turkey where 90 percent of a firm’s financial debt is obtained through bank loans. I find that adjusted for loan terms and firm-fixed effects, borrowers with past relationships with incumbent banks have lower risk-adjusted financing costs. Furthermore, lower financing costs associated with relationship are even more pronounced during the 2008–2009 financial crisis.     

Liquidation Value and Loan Pricing

This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements (repo), we show that borrowers pay a premium of 1.1 to 2.6 basis points when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize this premium when making their collateral choices. Loan-level credit registry data suggest that the results extend to the corporate loan market as well.