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The Costs of Being Private: Evidence from the Loan Market

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  • Anthony Saunders
  • Sascha Steffen

Abstract

Using a new dataset of UK-syndicated loans, we document a significant loan cost disadvantage incurred by privately held firms. For identification, we use the distance of a firm's headquarters to London's capital markets as a plausibly exogenous variation in corporate structure (i.e., public/private) choice. We analyze the channels of the loan cost disadvantage of being private by documenting the importance of: the higher costs of information production, the lower bargaining power, the differences in ownership structure, and the differences in secondary market trading. Interestingly, we find no evidence that lenders price expected future performance into the loan spread differential. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Anthony Saunders & Sascha Steffen, 2011. "The Costs of Being Private: Evidence from the Loan Market," The Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 4091-4122.
    • Handle: RePEc:oup:rfinst:v:24:y::i:12:p:4091-4122
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr083
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