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Inter-Market Competition and Bank Loan Spreads: Evidence from The Securities Offering Reform

28 Pages Posted: 23 Aug 2011 Last revised: 4 Oct 2017

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Date Written: October 1, 2017

Abstract

I provide evidence of a new mechanism by which access to public securities mitigates the bank hold-up problem and reduces loan spreads – it increases a borrower’s bargaining power vis-à-vis a lender by offering a bank loan substitute. Difference-in-differences results indicate that loan spreads are sensitive to legislation that makes public securities more attractive. Importantly, the effect is concentrated in credit-rated borrowers taking out term loans. Thus, the availability of public securities reduces loan spreads for established borrowers only when it offers a financing substitute and the hold-up problem is severe.

Keywords: Bank Loans, Bank Competition, Banking Relationships, Public Debt Market, Shelf Registrations

Suggested Citation

Gustafson, Matthew, Inter-Market Competition and Bank Loan Spreads: Evidence from The Securities Offering Reform (October 1, 2017). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1914867 or http://dx.doi.org/10.2139/ssrn.1914867

Matthew Gustafson (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

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