This paper examines the link between non-executive employee ownership and the terms and pricing of corporate loans. We find that a one-standard-deviation increase in employee stock ownership is associated with 1.67% decrease in loan spreads and one fewer restrictive loan covenant. The negative effect of employee stock ownership on loan spreads remains significant when we use within-firm variation and perform an analysis with instrumental variables based on demographic characteristics to address the concerns of endogeneity. Further analysis reveals that employee stock ownership may affect loan spreads by improving corporate governance, curbing managerial risk-taking, reducing information asymmetry, and improving employee retention. In contrast, we find that employee ownership via stock options is associated with greater loan spreads, perhaps owing to their convex payoff structure. Overall, our results underscore the importance of the level and structure of employee ownership for pricing corporate loans.

This study explores the extent to which a firm's debt maturity structure affects the cost of bank loans. By examining the U.S. syndicated loans from 1990 and 2014, we find that debt maturity structure is a major determinant of loan spreads, after accounting for firm- and loan-specific variables and firm and year fixed effects. A one standard deviation increase in the ratio of short-term debt to total assets is associated with an increase of 11.44 basis points in loan spread, representing an additional $0.644 million in interest expenses. The results support the rollover risk hypothesis, which predicts that short-term debts intensify the shareholder and bondholder conflicts and lead to greater credit risk. In addition, high-growth firms experience significantly smaller increases in their loan spreads than low-growth firms when the short-term debt ratio increases. This finding is consistent with the asset substitution theory that short-term debt mitigates the managerial/shareholders’ risk-taking incentives, leading to a decrease in firm risk. Our results remain strong when we use alternative short-term debt proxies, address endogeneity concerns, and perform various robustness tests.