The risk–return relation in the corporate loan market

Miguel Duran

The North American Journal of Economics and Finance, 2022, vol. 60, issue C

Abstract: This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are positively related. Our main findings support this prediction, in contrast to the only previous work that examined this problem two decades ago. Nevertheless, we find evidence of mispricing regarding the risk of deteriorating firms using their facilities more intensively and during the subprime crisis.

Keywords: Mispricing; Revolving credit lines; Risk premium; Risk–return relation (search for similar items in EconPapers)
JEL-codes: G29 G39 (search for similar items in EconPapers)
Date: 2022
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Working Paper: The Risk-Return Relation in the Corporate Loan Market (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:60:y:2022:i:c:s1062940822000043

DOI: 10.1016/j.najef.2022.101643

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