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
Date Written: May 26, 2011
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: Suggested Citation