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Bank competition and the cost of bank loans

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  • Yili Lian

    (Pennsylvania State University, Worthington Scranton)

Abstract

I comprehensively study the effect of bank competition on the cost of bank loans using U.S. bank loan data from 1995 to 2010. The cost of bank loans is analyzed with regard to loan spreads and covenant intensity. I show that loan spreads and covenant intensity are negatively related to bank competition. I also find that non-investment grade and financially constrained firms benefit more from bank competition than investment grade and financially unconstrained firms do. Lenders with low market power are more willing to reduce loan price than lenders with high market power in competitive lending markets. The results suggest that lenders give favorable loan terms to borrowers in competitive loan markets.

Suggested Citation

  • Yili Lian, 2018. "Bank competition and the cost of bank loans," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 253-282, July.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:1:d:10.1007_s11156-017-0670-9
    DOI: 10.1007/s11156-017-0670-9
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    More about this item

    Keywords

    Bank competition; Loan spreads; Loan covenants;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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