The Financial Intermediation Premium
59 Pages Posted: 6 Nov 2017 Last revised: 16 Apr 2021
Date Written: April 16, 2021
Abstract
Using syndicated loan data, I document a premium for the exposure of nonfinancial firms to risks of financial intermediation. Firms that borrow from high-leverage financial intermediaries have on average 4% higher returns than firms with low-leverage lenders. This premium cannot be attributed to differences in firm characteristics. Instead, it stems from the underdiversified lender syndicate structure and elevated firm's refinancing intensity, materializing through inability to favorably renegotiate lending terms and obtain additional financing. Exploiting the dispersion in leverage of financial intermediaries extending credit, I propose a macroeconomic indicator that captures changes in lending standards and forecasts industrial production and unemployment.
Keywords: financial intermediation, risk premium
JEL Classification: G12, G21
Suggested Citation: Suggested Citation