 Happily ever after? Lender diversification and performance sensitivity in post-IPO loansLuca X. Lin and Xiaoyu Zhang Journal of Corporate Finance, 2025, vol. 92, issue C Abstract: Going public reduces information asymmetry between a firm’s incumbent and potential new lenders. However, we show that while loan spreads are lower in post-IPO loans due to increased lender competition, the likelihood of having interest-increasing performance-pricing, which automatically increases spreads if firm performance deteriorates, is substantially heightened, only for loans from new lenders. This indicates that new lenders remain skeptical despite a more “level playing field.” Newly public firms need to commit to performance-sensitive debt to convince outside lenders, despite gaining a credible mechanism to disseminate information to them. Pricing grids do get amended more often ex-post for such loans, reflecting a lender learning process. Newly public firms are indeed still more likely to obtain loans from new lenders post-IPO. Our results suggest that performance pricing can serve to address the remaining information gap with new lenders beyond hard-information disclosure, allowing firms to better diversify their lender base. Keywords: Lender diversification; Relationship lending; IPO; Performance pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:92:y:2025:i:c:s0929119925000422 DOI: 10.1016/j.jcorpfin.2025.102774 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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