Inter-Market Competition and Bank Loan Spreads: Evidence from The Securities Offering Reform
Pennsylvania State University - Smeal College of Business
November 1, 2013
24th Australasian Finance and Banking Conference 2011 Paper
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. The post-legislation spread reduction is largest for the bank borrowers that benefit most from the legislation. Importantly, the effect is concentrated in credit-rated borrowers taking out term loans and borrowers returning to the bank lending market quickly. 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.
Number of Pages in PDF File: 30
Keywords: Bank Loans, Bank Competition, Banking Relationships, Public Debt Market, Shelf Registrations
Date posted: August 23, 2011 ; Last revised: November 26, 2013