Maturity and Corporate Loan Pricing

Posted: 20 Jan 2004

See all articles by Aron A. Gottesman

Aron A. Gottesman

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

Gordon S. Roberts

York University - Schulich School of Business

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Abstract

We investigate the relation 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 (credit-quality hypothesis). Earlier studies reject the tradeoff hypothesis. We use the LPC DealScan 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 and cross-sectional and regression analyses, and find evidence supporting both the tradeoff and credit quality hypotheses.

Keywords: Bank, borrower, loan, contract terms

JEL Classification: G21

Suggested Citation

Gottesman, Aron A. and Roberts, Gordon S., Maturity and Corporate Loan Pricing. Financial Review, Vol. 39, pp. 55-77, 2004; Pace University Finance Research Paper No. 2004/01. Available at SSRN: https://ssrn.com/abstract=487684

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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