Does Banks’ Corporate Control Lower Funding Costs? Evidence from US Banks’ Control Over Firms’ Voting Rights

Joao Santos and Kristin E. Wilson
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Kristin E. Wilson: University of North Carolina

Journal of Financial Services Research, 2017, vol. 51, issue 3, No 1, 283-311

Abstract: Abstract We investigate the effect of banks’ corporate control on the cost of bank lending. We exploit the fact that the shares banks hold in a fiduciary capacity can give them control over firms’ voting rights that are separate from firms’ cash flow rights. We find that banks offer firms an interest rate discount that is increasing with the bank’s voting stake in the firm. This finding is robust and appears to be driven by the bank’s voting rights. Banks offer larger discounts when they have more authority to exercise their voting rights, and no discount when they hold an equity stake that does not give them voting authority. Additionally, banks offer larger interest rate discounts to riskier borrowers, and firms that borrow from banks with voting rights experience lower stock volatility after they take out loans.

Keywords: Corporate control; Trust business; Voting rights; Agency costs of debt (search for similar items in EconPapers)
JEL-codes: G21 G34 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10693-016-0249-y

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