Informational Spillovers from Credit Lines to Term Loans

Charu Agarwal

University of Illinois - Urbana Champaign

September 1, 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.

Number of Pages in PDF File: 34

Keywords: Loan Loss Provisions, Bank Regulation, Line of Credit, Term Loan, Information Asymmetry, Information Spillover, Credit History

JEL Classification: G21, G32, D82

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Date posted: May 1, 2012 ; Last revised: March 15, 2014

Suggested Citation

Agarwal, Charu, Informational Spillovers from Credit Lines to Term Loans (September 1, 2013). Available at SSRN: http://ssrn.com/abstract=2048995 or http://dx.doi.org/10.2139/ssrn.2048995

Contact Information

Charu Agarwal (Contact Author)
University of Illinois - Urbana Champaign ( email )
339 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
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