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When Shareholders Are Creditors: Effects of the Simultaneous Holding of Equity and Debt by Non-commercial Banking Institutions


Author Info

  • Wei Jiang
  • Kai Li
  • Pei Shao


This article provides a comprehensive analysis of a new and increasingly important phenomenon: the simultaneous holding of both equity and debt claims of the same company by non-commercial banking institutions ("dual holders"). The presence of dual holders offers a unique opportunity to assess the existence and magnitude of shareholder-creditor conflicts. We find that syndicated loans with dual holder participation have loan yield spreads that are 18--32 bps lower than those without. The difference remains economically significant after controlling for the selection effect. Further investigation of dual holders' investment horizons and changes in borrowers' credit quality lends support to the hypothesis that incentive alignment between shareholders and creditors plays an important role in lowering loan yield spreads. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail:, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 23 (2010)
Issue (Month): 10 (October)
Pages: 3595-3637

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Handle: RePEc:oup:rfinst:v:23:y:2010:i:10:p:3595-3637

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Cited by:
  1. Vikas Agarwal & Costanza Meneghetti, 2011. "The role of hedge funds as primary lenders," Review of Derivatives Research, Springer, vol. 14(2), pages 241-261, July.
  2. Lim, Jongha & Minton, Bernadette A. & Weisbach, Michael S., 2012. "Syndicated Loan Spreads and the Composition of the Syndicate," Working Paper Series 2012-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  3. Indraneel Chakraborty & Michael Ewens, . "Does Security Choice Matter in Venture Capital? The Case of Venture Debt," GSIA Working Papers 2012-E35, Carnegie Mellon University, Tepper School of Business.
  4. Lim, Jongha & Minton, Bernadette A. & Weisbach, Michael S., 2012. "Equity-Holding Institutional Lenders: Do They Receive Better Terms?," Working Paper Series 2012-05, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  5. Hasan, Iftekhar & O’Brien, Jonathan & Ye , Pengfei, 2013. "What types of bondholders impede corporate innovative activities?," Research Discussion Papers 23/2013, Bank of Finland.
  6. Samano, Daniel, 2011. "In the quest of macroprudential policy tools," MPRA Paper 30738, University Library of Munich, Germany.


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