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Universal banks and corporate control: evidence from the global syndicated loan market

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  • Ferreira, Miguel A.
  • Matos, Pedro
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    Abstract

    Banks play a role in the corporate governance of firms as well as acting as debt financiers around the world. Universal banks can have control over borrowing firms by representation on the board of directors or by holding shares through direct stakes or institutional holdings. We investigate the effects of these bank-firm governance links on the global syndicated loan market. We find that banks are more likely to act as lead arrangers, charge higher interest rate spreads and face less credit risk after origination when they have some role in firm’s governance. This increase in interest rate spread is less pronounced for borrowers with access to international capital markets. Our results are robust to several methods to correct for the endogeneity of the bank-firm governance link. Our findings suggest that the benefits of bank involvement in firms’ governance accrue mostly to the banks. JEL Classification: G21, G32

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 1066.

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    Date of creation: Jul 2009
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    Handle: RePEc:ecb:ecbwps:20091066

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    Keywords: Corporate boards; Ownership; syndicated loans; Universal banking;

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    Cited by:
    1. Dietrich, Diemo & Vollmer, Uwe, 2012. "Are universal banks bad for financial stability? Germany during the world financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 123-134.

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