Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms

22 Pages Posted: 27 Nov 2007

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business

Gabriel G. Ramírez

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.

Suggested Citation

Ackert, Lucy F. and Huang, Rongbing and Ramírez, Gabriel G., Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms. Financial Markets, Institutions & Instruments, Vol. 16, No. 5, pp. 221-242, December 2007, Available at SSRN: https://ssrn.com/abstract=1032008 or http://dx.doi.org/10.1111/j.1468-0416.2007.00125.x

Lucy F. Ackert (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Mail Drop #0403
Kennesaw, GA 30144
United States

Gabriel G. Ramírez

affiliation not provided to SSRN

No Address Available

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
13
Abstract Views
842
PlumX Metrics