Managerial ability and bank‐loan pricing |
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| Authors: | Gus De Franco Ole‐Kristian Hope Haihao Lu |
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| Institution: | 1. Freeman School of Business, Tulane University, New Orleans, United States;2. Rotman School of ManagementUniversity of Toronto;3. BI Norwegian Business School, Oslo, Norway;4. School of Accounting and Finance, University of Waterloo, Waterloo, Canada |
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| Abstract: | This paper examines the impact of borrowers’ managerial ability on lenders’ bank‐loan pricing and the channels through which managerial ability affects bank‐loan pricing. Using a large sample of US bank loans, we provide evidence that higher managerial ability is associated with lower bank‐loan prices. This effect is stronger in firms with high information risk, suggesting that an important channel for managerial ability to affect bank‐loan pricing is through improved financial disclosure to mitigate information asymmetry. The relationship is also stronger for firms with weak business fundamentals, implying that another channel is through improved business performance. Of these two mechanisms, path analysis suggests that the business‐fundamentals mechanism is the more important channel through which managerial ability affects bank‐loan pricing. |
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| Keywords: | bank‐loan pricing disclosure fundamentals managerial ability path analysis |
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