Do Information Rents in Loan Spreads Persist over the Business Cycles?
Julian A. Mattes
Goethe University Frankfurt - Department of Finance
ESMT European School of Management and Technology
University of Frankfurt - Economics and Business Administration Area
February 3, 2012
Journal of Financial Services Research, Forthcoming
In this paper, we seek empirical evidence for information rents in loan spreads by analyzing a sample of UK syndicated loan contracts for the period from 1996 to 2005. We use various measures for borrower opaqueness and control for bank, borrower and loan characteristics and we find that undercapitalized banks charge approximately 34 bps higher loan spreads for loans to opaque borrowers. We further analyze whether this effect persists throughout the business cycle and find that this effect prevails only during recessions. However, we do not find evidence that banks exploit their information monopolies during expansion phases.
Number of Pages in PDF File: 29
Keywords: Syndicated loans, Hold-up, Lending relationships, Business cycle
JEL Classification: G14, G21, G22, G23, G24Accepted Paper Series
Date posted: March 3, 2008 ; Last revised: February 8, 2012
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