Informational Spillovers from Credit Lines to Term Loans
University of Illinois - Urbana Champaign
March 28, 2012
FMA Annual Meeting Chicago, 2013
This paper analyzes the information spillover from credit line to term loans that firm contracts from a single lender or a group of lenders. The information asymmetry between the borrower and the lender is dynamic as it is costly to acquire updated information about the borrower. Having a line of credit (LoC) facilitates the information collection that is timely and relevant to assess the creditworthiness of the borrower continually. The information from LoC associated with the loan pricing is not incorporated in the loan rating, is significant when at least one lead arranger is in common, and stays significant irrespective of the relational lending.
Keywords: Line of Credit, Term Loan, Information Asummetry, Information Spillover, Credit History, Heckman Estimator
JEL Classification: G21, G32, D82working papers series
Date posted: May 1, 2012 ; Last revised: September 23, 2013
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