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The Costs of Being Private: Evidence from the Loan Market

Anthony Saunders1; Sascha Steffen2,3

1 New York University · 2 University of Mannheim · 3 Frankfurt School of Finance & Management

Review of Financial Studies 2011 open access

Using a new dataset of UK-syndicated loans, we document a significant loan cost disadvantage incurred by privately held firms. For identification, we use the distance of a firm's headquarters to London's capital markets as a plausibly exogenous variation in corporate structure (i.e., public/private) choice. We analyze the channels of the loan cost disadvantage of being private by documenting the importance of: the higher costs of information production, the lower bargaining power, the differences in ownership structure, and the differences in secondary market trading. Interestingly, we find no evidence that lenders price expected future performance into the loan spread differential.

DOI
10.1093/rfs/hhr083
Volume
24 (12)
Pages
4091-4122
Language
en
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Sources
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