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Bank borrowing and corporate risk management

  • Lookman, Aziz A.
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    We examine whether banks better protect themselves against risk-shifting as compared to non-bank lenders by comparing risk management polices across firms that borrow from different lenders using a unique, hand-collected data set of hedging and borrowing practices. Consistent with banks being effective monitors, we find hedging is positively associated with the proportion of bank debt amongst firms with large risk-shifting incentives. We present descriptive evidence showing that banks use covenants as one of the channels to mitigate risk-shifting.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1042-9573(09)00016-3
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    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 18 (2009)
    Issue (Month): 4 (October)
    Pages: 632-649

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    Handle: RePEc:eee:jfinin:v:18:y:2009:i:4:p:632-649
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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