Do Shareholder Rights Affect the Cost of Bank Loans?
AbstractUsing a large sample of bank loans issued to U.S. firms between 1990 and 2004, we find that lower takeover defenses (as proxied by the lower G-index of Gompers, Ishii, and Metrick 2003) significantly increase the cost of loans for a firm. Firms with lowest takeover defense (democracy) pay a 25% higher spread on their bank loans as compared with firms with the highest takeover defense (dictatorship), after controlling for various firm and loan characteristics. Further investigations indicate that banks charge a higher loan spread to firms with higher takeover vulnerability mainly because of their concern about a substantial increase in financial risk after the takeover. Our results have important implications for understanding the link between a firm's governance structure and its cost of capital. Our study suggests that firms that rely too much on corporate control market as a governance device are punished by costlier bank loans. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: email@example.com, Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Society for Financial Studies in its journal The Review of Financial Studies.
Volume (Year): 22 (2009)
Issue (Month): 8 (August)
Contact details of provider:
Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rahaman, Mohammad M. & Zaman, Ashraf Al, 2013. "Management quality and the cost of debt: Does management matter to lenders?," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 854-874.
- Francis, Bill & Hasan, Iftekhar & Koetter, Michael & Wu, Qiang, 2012.
"Corporate boards and bank loan contracting,"
Research Discussion Papers
14/2012, Bank of Finland.
- Arena, Matteo P. & Dewally, Michaël, 2012. "Firm location and corporate debt," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1079-1092.
- Takanori Tanaka, 2011. "Corporate Governance and the Costs of Public Debt Financing: Evidence from Japan," Discussion Papers in Economics and Business 11-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2011. "The impact of CFO gender on bank loan contracting," Research Discussion Papers 18/2011, Bank of Finland.
- Senay Agca & Deniz Igan, 2013. "Fiscal Consolidation and the Cost of Credit: Evidence from Syndicated Loans," IMF Working Papers 13/36, International Monetary Fund.
- 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.
- Fang, Yiwei & Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2012. "Product market relationships and cost of bank loans: Evidence from strategic alliances," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 653-674.
- Yeh, Yin-Hua & Shu, Pei-Gi & Chiu, Shean-Bii, 2013. "Political connections, corporate governance and preferential bank loans," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1079-1101.
- Chen, Dong, 2012. "Classified boards, the cost of debt, and firm performance," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3346-3365.
- Bradley, Michael & Chen, Dong, 2011. "Corporate governance and the cost of debt: Evidence from director limited liability and indemnification provisions," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 83-107, February.
- Paige Fields, L. & Fraser, Donald R. & Subrahmanyam, Avanidhar, 2012. "Board quality and the cost of debt capital: The case of bank loans," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1536-1547.
- Bill Francis & Iftekhar Hasan & Liang Song, 2012.
"Are Firm- And Country-Specific Governance Substitutes? Evidence From Financial Contracts In Emerging Markets,"
Journal of Financial Research,
Southern Finance Association & Southwestern Finance Association, vol. 35(3), pages 343-374, 09.
- Francis, Bill & Hasan, Iftekhar & Song, Liang, 2012. "Are firm- and country-specific governance substitutes? Evidence from financial contracts in emerging markets," Research Discussion Papers 12/2012, Bank of Finland.
- Ge, Wenxia & Kim, Jeong-Bon & Song, Byron Y., 2012. "Internal governance, legal institutions and bank loan contracting around the world," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 413-432.
- Lin, Chen & Ma, Yue & Malatesta, Paul & Xuan, Yuhai, 2011. "Ownership structure and the cost of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 100(1), pages 1-23, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.