Managerial Ability and Bank‐Loan Pricing

23 Pages Posted: 5 Nov 2017

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Haihao Lu

University of Waterloo

Multiple version iconThere are 3 versions of this paper

Date Written: October/November 2017

Abstract

This paper examines the impact of borrowers’ managerial ability on lenders’ bank‐loan pricing and the channels through which managerial ability affects bank‐loan pricing. Using a large sample of US bank loans, we provide evidence that higher managerial ability is associated with lower bank‐loan prices. This effect is stronger in firms with high information risk, suggesting that an important channel for managerial ability to affect bank‐loan pricing is through improved financial disclosure to mitigate information asymmetry. The relationship is also stronger for firms with weak business fundamentals, implying that another channel is through improved business performance. Of these two mechanisms, path analysis suggests that the business‐fundamentals mechanism is the more important channel through which managerial ability affects bank‐loan pricing.

Keywords: bank‐loan pricing, disclosure, fundamentals, managerial ability, path analysis

Suggested Citation

De Franco, Gus and Hope, Ole-Kristian and Lu, Haihao, Managerial Ability and Bank‐Loan Pricing (October/November 2017). Journal of Business Finance & Accounting, Vol. 44, Issue 9-10, pp. 1315-1337, 2017, Available at SSRN: https://ssrn.com/abstract=3064366 or http://dx.doi.org/10.1111/jbfa.12267

Gus De Franco (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Ole-Kristian Hope

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Haihao Lu

University of Waterloo

Waterloo, N2L 3G1
Canada

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