Information asymmetry, external certification, and the cost of bank debt

Andrea Bellucci, Alexander Borisov, Germana Giombini and Alberto Zazzaro ()

Journal of Corporate Finance, 2023, vol. 78, issue C

Abstract: This paper examines how the cost of bank debt reflects public information about borrower quality, and whether such information complements or substitutes the private information of banks. Using a sample of small business loans, and the award of a competitive public subsidy as an observable positive signal of external certification, we find that certification is associated with a lower cost of debt for subsidy recipients if the amount of private information of the lender is limited or the local credit market is less competitive. Public information loses importance once the bank accumulates information over the course of the lending relationship or the credit market is more competitive. Our results highlight a positive effect of external certification, driven by the signal it provides to both the lending bank and its competitors, and suggest that public and private information can be substitutes in the pricing of bank debt.

Keywords: Information; Financial contracting; Interest rate; SMEs financing (search for similar items in EconPapers)
JEL-codes: D21 D83 G21 G30 L11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Information Asymmetry, External Certification, and the Cost of Bank Debt (2022)
Working Paper: Information Asymmetry, External Certification, and the Cost of Bank Debt (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:78:y:2023:i:c:s0929119922001791

DOI: 10.1016/j.jcorpfin.2022.102336

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