Journal of Corporate Finance Vol. 92 2025
Happily ever after? Lender diversification and performance sensitivity in post-IPO loans
Abstract
Going public reduces information asymmetry between a firm’s incumbent and potential new lenders. However, we show that while loan spreads are lower in post-IPO loans due to increased lender competition, the likelihood of having interest-increasing performance-pricing, which automatically increases spreads if firm performance deteriorates, is substantially heightened, only for loans from new lenders. This indicates that new lenders remain skeptical despite a more “level playing field.” Newly public firms need to commit to performance-sensitive debt to convince outside lenders, despite gaining a credible mechanism to disseminate information to them. Pricing grids do get amended more often ex-post for such loans, reflecting a lender learning process. Newly public firms are indeed still more likely to obtain loans from new lenders post-IPO. Our results suggest that performance pricing can serve to address the remaining information gap with new lenders beyond hard-information disclosure, allowing firms to better diversify their lender base.
- DOI
- 10.1016/j.jcorpfin.2025.102774
- Volume
- 92
- Pages
- 102774
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref