Bank competition and the cost of bank loans

Yili Lian ()
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Yili Lian: Pennsylvania State University, Worthington Scranton

Review of Quantitative Finance and Accounting, 2018, vol. 51, issue 1, No 10, 253-282

Abstract: Abstract I comprehensively study the effect of bank competition on the cost of bank loans using U.S. bank loan data from 1995 to 2010. The cost of bank loans is analyzed with regard to loan spreads and covenant intensity. I show that loan spreads and covenant intensity are negatively related to bank competition. I also find that non-investment grade and financially constrained firms benefit more from bank competition than investment grade and financially unconstrained firms do. Lenders with low market power are more willing to reduce loan price than lenders with high market power in competitive lending markets. The results suggest that lenders give favorable loan terms to borrowers in competitive loan markets.

Keywords: Bank competition; Loan spreads; Loan covenants (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11156-017-0670-9

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