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Maturity and Corporate Loan Pricing

39 Pages Posted: 6 Sep 2002  

Aron A. Gottesman

Pace University - Lubin School of Business - Department of Finance and Economics

Gordon S. Roberts

York University - Schulich School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 2003

Abstract

We investigate the relationship between corporate loan spreads and maturity to test whether lenders are compensated for longer maturity loans (tradeoff hypothesis) or limit their exposure by forcing riskier borrowers to take short-term loans (creditquality hypothesis). Earlier studies reject the tradeoff hypothesis. We use the LPC Deal Scan database to create a matched sample of pairs of loans to the same borrower on the same day holding credit quality constant. We perform mean of difference tests, cross sectional and regression analyses, and find evidence supporting both the tradeoff and credit quality hypotheses.

JEL Classification: G21

Suggested Citation

Gottesman, Aron A. and Roberts, Gordon S., Maturity and Corporate Loan Pricing (January 10, 2003). EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=322882 or http://dx.doi.org/10.2139/ssrn.322882

Aron A. Gottesman (Contact Author)

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038
United States
212-346-1912 (Phone)
212-346-1573 (Fax)

Gordon S. Roberts

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)

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