Loan Pricing at Investment Versus Commercial Banks

35 Pages Posted: 29 Sep 2004

See all articles by Maretno A. Harjoto

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Donald J. Mullineaux

University of Kentucky - Gatton College of Business and Economics

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics

Date Written: September 28, 2004

Abstract

We study whether investment banks, which began to originate syndicated loans in 1996, price debt claims differently than commercial banks. Differences between the two institution types in funding access, regulation, accounting rules, scope economies, and the relevance of relationships could prompt differential loan pricing. We find that investment banks lend to less profitable, more leveraged firms than commercial banks and offer longer-term credits, more commonly with term rather than commitment contracts. Investment banks establish higher credit spreads than commercial banks, other things equal. Investment banks also exact smaller credit risk premia for leverage than commercial banks and price certain classes of term loans more generously than commercial banks. We confidently reject the hypothesis that the loan pricing processes of investment and commercial banks are identical.

Keywords: Bank Loan, Loan Pricing, Syndicated Loan

Suggested Citation

Harjoto, Maretno Agus and Mullineaux, Donald J. and Yi, Ha-Chin, Loan Pricing at Investment Versus Commercial Banks (September 28, 2004). Available at SSRN: https://ssrn.com/abstract=597082 or http://dx.doi.org/10.2139/ssrn.597082

Maretno Agus Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Donald J. Mullineaux (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-2890 (Phone)
859-257-9688 (Fax)

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics ( email )

601 University Drive
San Marcos, TX 78666
United States
512-245-3251 (Phone)

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