The Costs of Being Private: Evidence from the Loan Market

Review of Financial Studies, Forthcoming

57 Pages Posted: 1 Feb 2009 Last revised: 30 May 2011

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Sascha Steffen

Frankfurt School of Finance & Management

Date Written: May 26, 2011

Abstract

Using a new data set of U.K. syndicated loans, we document a significant loan cost disadvantage incurred by privately-held firms. For identification, we use the distance of a firm’s headquarters to London’s capital markets as a plausibly exogenous variation in corporate structure (i.e. public/private) choice. We analyze the channels of the loan cost disadvantage of being private by documenting the importance of: the higher costs of information production, the lower bargaining power, the differences in ownership structure, and the differences in secondary market trading. Interestingly, we find no evidence that lenders price expected future performance into the loan spread differential.

Keywords: Banks, Syndicated loans, Costs of being private

JEL Classification: G21, G22

Suggested Citation

Saunders, Anthony and Steffen, Sascha, The Costs of Being Private: Evidence from the Loan Market (May 26, 2011). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1335007

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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

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