The role of bank lenders in firm leverage adjustments

Wenlian Gao, Feifei Zhu and Kai Chen

Journal of Financial Research, 2023, vol. 46, issue 1, 63-97

Abstract: In this article we examine the impact of bank loan characteristics on firm leverage adjustments, with a special focus on the conflicts of interest between shareholders and creditors. The results show that, on average, more bank loans slow down leverage adjustments. The subsample analysis reveals that bank loans slow down leverage adjustments in underlevered firms but speed up adjustments in overlevered firms. This finding suggests that bank lenders are able to limit their risk exposure in borrowers and protect their own rights. Further evidence indicates that the effect of bank loans is more notable during the global financial crisis and when a firm is financially constrained. Bank loan concentration and maturity have a significant impact on leverage adjustments as well.

Date: 2023
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