Private benefits of control and bank loan contracts

Chih-Yung Lin, Wei-Che Tsai, Iftekhar Hasan and Le Quoc Tuan

Journal of Corporate Finance, 2018, vol. 49, issue C, 324-343

Abstract: This paper investigates whether or not private benefits of control by managers and large shareholders influence the financing cost of firms. Evidence shows that lending banks demand a significantly higher loan spread, higher fees, shorter loan maturity, smaller loan size, stricter covenants, and greater collateral on firms with greater private benefits of control. Results are stronger for firms with weak corporate governance quality, supporting the agency cost viewpoint. Such evidence implies that banks consider higher private benefits of control as a type of agency problem when they make lending decisions.

Keywords: Private benefits of control; Agency problem; Bank loan spread; Non-price terms; Corporate governance (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:49:y:2018:i:c:p:324-343

DOI: 10.1016/j.jcorpfin.2018.01.006

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