Post by Sapphire Capital on Jul 11, 2008 21:56:12 GMT 4
Lending Relationships and Loan Contract Terms
SREEDHAR T. BHARATH
University of Michigan at Ann Arbor - Stephen M. Ross School of Business
SANDEEP DAHIYA
Georgetown University - Department of Finance
ANTHONY SAUNDERS
New York University - Leonard N. Stern School of Business
ANAND SRINIVASAN
National University of Singapore - Department of Finance
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September 27, 2007
Abstract:
Does repeated borrowing from the same lender affect loan contract terms? We find that repeated borrowing from the same lender translates into a 10 to 15 bps lowering of loan spreads. We find that relationships are especially valuable when borrower transparency is low and the moral hazard among lending syndicate members is high. We also provide a demarcation line between relationship and transactional lending. We find that spreads charged for relationship loans and non-relationship loans become indistinguishable if the borrower is in the top 30% when ranked by asset size. Similar dissipation of relationship benefits occur if the borrower is rated as investment grade or is part of the S&P 500 index. We find that past relationships reduce the collateral requirements. Relationships are also associated with shorter debt maturity especially for the lowest quality borrowers. Our results are robust to an estimation methodology which allows loan spread, collateral requirements and loan maturity to be determined jointly using an instrumental variables approach. We also find relationship borrowers obtain larger loans (scaled by the borrower's asset size) compared to non-relationship borrowers. Thus, our results imply that, even for firms that have multiple sources of outside financing, borrowing from a prior lender obtains better loan terms
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID891150_code505298.pdf?abstractid=891150&mirid=3
SREEDHAR T. BHARATH
University of Michigan at Ann Arbor - Stephen M. Ross School of Business
SANDEEP DAHIYA
Georgetown University - Department of Finance
ANTHONY SAUNDERS
New York University - Leonard N. Stern School of Business
ANAND SRINIVASAN
National University of Singapore - Department of Finance
--------------------------------------------------------------------------------
September 27, 2007
Abstract:
Does repeated borrowing from the same lender affect loan contract terms? We find that repeated borrowing from the same lender translates into a 10 to 15 bps lowering of loan spreads. We find that relationships are especially valuable when borrower transparency is low and the moral hazard among lending syndicate members is high. We also provide a demarcation line between relationship and transactional lending. We find that spreads charged for relationship loans and non-relationship loans become indistinguishable if the borrower is in the top 30% when ranked by asset size. Similar dissipation of relationship benefits occur if the borrower is rated as investment grade or is part of the S&P 500 index. We find that past relationships reduce the collateral requirements. Relationships are also associated with shorter debt maturity especially for the lowest quality borrowers. Our results are robust to an estimation methodology which allows loan spread, collateral requirements and loan maturity to be determined jointly using an instrumental variables approach. We also find relationship borrowers obtain larger loans (scaled by the borrower's asset size) compared to non-relationship borrowers. Thus, our results imply that, even for firms that have multiple sources of outside financing, borrowing from a prior lender obtains better loan terms
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID891150_code505298.pdf?abstractid=891150&mirid=3