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Does institutional ownership affect the cost of bank borrowing?

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  • Roberts, Gordon
  • Yuan, Lianzeng (Edward)

Abstract

Institutional ownership is negatively related, both statistically and economically, to loan spreads. This relationship is stronger for firms with higher degrees of information asymmetry. Institutional investors play an active role in corporate governance by reducing the risk levels of their portfolio companies through effectively monitoring management. Further, at high levels of concentration, institutional ownership has the tendency to increase the cost of loans due to the agency cost of debt. Nonetheless, companies with institutional investors pay significantly lower borrowing costs than companies without institutional shareholders.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 62 (2010)
Issue (Month): 6 (November)
Pages: 604-626

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Handle: RePEc:eee:jebusi:v:62:y::i:6:p:604-626

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Web page: http://www.elsevier.com/locate/jeconbus

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Keywords: Loan pricing Corporate governance;

References

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Citations

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Cited by:
  1. Fang, Yiwei & Francis , Bill & Hasan , Iftekhar & Wang, Haizhi, 2011. "Product market relationships and cost of bank loans: evidence from strategic alliances," Research Discussion Papers 4/2011, Bank of Finland.
  2. Carmen Lorca & Juan Sánchez-Ballesta & Emma García-Meca, 2011. "Board Effectiveness and Cost of Debt," Journal of Business Ethics, Springer, vol. 100(4), pages 613-631, June.
  3. Goss, Allen & Roberts, Gordon S., 2011. "The impact of corporate social responsibility on the cost of bank loans," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1794-1810, July.

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