An Empirical Analysis of the Cost of Borrowing

Miguel Faria-e-Castro, Samuel Jordan-Wood and Julian Kozlowski

No 2024-016, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of the cost of financing, the Excess Debt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 97 basis points cheaper than corporate bonds when controlling for observable characteristics. Second, there is significant dispersion in borrowing costs, even within the same firm and quarter. The analysis reveals that this within firm variation persists after accounting for instrument type, maturity, amount, and lender identity, suggesting substantial heterogeneity in the cost of debt across different financing instruments.

Keywords: credit spreads; bonds; loans; macro-finance (search for similar items in EconPapers)
JEL-codes: E6 G1 H0 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-07-15, Revised 2025-11-03
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fdg
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DOI: 10.20955/wp.2024.016

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