How Banks Price Loans for LBOs: an Empirical Analysis of Spread Determinants *

Paulo P. Alves (), M. Ricardo Cunha (), Luís K. Pacheco () and João M. Pinto ()
Additional contact information
Paulo P. Alves: Católica Porto Business School and CEGE
M. Ricardo Cunha: Católica Porto Business School and CEGE
Luís K. Pacheco: Católica Porto Business School and CEGE
João M. Pinto: Católica Porto Business School and CEGE

Journal of Financial Services Research, 2022, vol. 62, issue 3, No 2, 163-200

Abstract: Abstract This paper examines which factors determine the pricing of loans for LBOs, using a worldwide sample of 11,111 loans closed in the 2000–2016 period. Our findings are consistent with the hypotheses that loans for LBOs extended to borrowers in market- versus bank-based financial systems are differently priced, and that law and institutional characteristics are important determinants of spreads for deals closed in market-oriented countries. Despite LBO loan pricing differing significantly in normal versus crisis times, loans extended to borrowers in market-based financial systems have higher spreads than those where banks play a major role. Our results also support the hypothesis of tranching as a mechanism of reducing spreads by completing financial markets and mitigating informational asymmetries. Finally, a robust convex relationship between spread and maturity is found, suggesting higher market competition by banks and investors for standard, medium-term maturities.

Keywords: Loan pricing; LBOs; Financial crisis; Market-based; Term structure of spreads (search for similar items in EconPapers)
JEL-codes: F34 G01 G21 G34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10693-021-00355-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:62:y:2022:i:3:d:10.1007_s10693-021-00355-y

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-021-00355-y

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().