Inter-Market Competition and Bank Loan Spreads: Evidence from The Securities Offering Reform
28 Pages Posted: 23 Aug 2011 Last revised: 4 Oct 2017
Date Written: October 1, 2017
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
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