Do Lending Relationships Affect Corporate Financial Policies?

Financial Management, Vol. 45, No.1, Spring 2016

American Economic Association 2013 Meetings

33 Pages Posted: 15 Mar 2012 Last revised: 22 Mar 2019

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Date Written: 2016

Abstract

This paper studies how lending relationships impact firms' capital structure and debt-equity financing decisions. I depart from existing literature on lending relationships in two respects: First, I build a panel dataset on firm-loan observations. Second, I account for the endogenous nature of the matching between borrowers and lenders through endogenous switching regression models. I find that lending relationships have a significant impact on leverage ratios, issuance choices and debt placement structures of relationship borrowers. In an analysis of leverage and issuance changes, I find a significant decrease in net debt issuing activity and debt ratios following lender-specific shocks to lending relationships. All in all, results show that lending relationships and debt exist as partial complements, rather than substitutes, alleviating the negative effects of agency problems and agency costs of information asymmetry.

Keywords: Lending relationships, Endogenous matching, Financing policy, Lender-specific shocks

Suggested Citation

Aslan, Hadiye, Do Lending Relationships Affect Corporate Financial Policies? (2016). Financial Management, Vol. 45, No.1, Spring 2016 , American Economic Association 2013 Meetings , Available at SSRN: https://ssrn.com/abstract=2022368 or http://dx.doi.org/10.2139/ssrn.2022368

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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