Maturity and Corporate Loan Pricing
Aron A. Gottesman
Pace University - Lubin School of Business - Department of Finance and Economics
Gordon S. Roberts
York University - Schulich School of Business
January 10, 2003
EFMA 2003 Helsinki Meetings
We investigate the relationship between corporate loan spreads and maturity to test whether lenders are compensated for longer maturity loans (tradeoff hypothesis) or limit their exposure by forcing riskier borrowers to take short-term loans (creditquality hypothesis). Earlier studies reject the tradeoff hypothesis. We use the LPC Deal Scan database to create a matched sample of pairs of loans to the same borrower on the same day holding credit quality constant. We perform mean of difference tests, cross sectional and regression analyses, and find evidence supporting both the tradeoff and credit quality hypotheses.
Number of Pages in PDF File: 39
JEL Classification: G21
Date posted: September 6, 2002
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