Do Information Rents in Loan Spreads Persist over the Business Cycles?

29 Pages Posted: 3 Mar 2008 Last revised: 8 Feb 2012

See all articles by Julian A. Mattes

Julian A. Mattes

Goethe University Frankfurt - Department of Finance

Sascha Steffen

Frankfurt School of Finance & Management

Mark Wahrenburg

Faculty of Economics and Business Administration

Date Written: February 3, 2012

Abstract

In this paper, we seek empirical evidence for information rents in loan spreads by analyzing a sample of UK syndicated loan contracts for the period from 1996 to 2005. We use various measures for borrower opaqueness and control for bank, borrower and loan characteristics and we find that undercapitalized banks charge approximately 34 bps higher loan spreads for loans to opaque borrowers. We further analyze whether this effect persists throughout the business cycle and find that this effect prevails only during recessions. However, we do not find evidence that banks exploit their information monopolies during expansion phases.

Keywords: Syndicated loans, Hold-up, Lending relationships, Business cycle

JEL Classification: G14, G21, G22, G23, G24

Suggested Citation

Mattes, Julian A. and Steffen, Sascha and Wahrenburg, Mark, Do Information Rents in Loan Spreads Persist over the Business Cycles? (February 3, 2012). Journal of Financial Services Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1101022 or http://dx.doi.org/10.2139/ssrn.1101022

Julian A. Mattes

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
House of Finance
Frankfurt am Main, D-60323
Germany

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Mark Wahrenburg

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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