Download This PaperInformation Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms
34 Pages Posted: 29 May 2007 Last revised: 14 Apr 2011
There are 2 versions of this paper
Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms
Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms
Date Written: May 29, 2007
Abstract
This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.
Keywords: private firm financing, loan structure, loan pricing, bank financing, information opacity, credit risk, bank loans
JEL Classification: G20, G21
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Large-Sample Evidence on the Debt Covenant Hypothesis
By Ilia D. Dichev and Douglas J. Skinner
-
How Does Financing Impact Investment? The Role of Debt Covenants
By Sudheer Chava and Michael R. Roberts