Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms

Lucy Ackert, Rongbing Huang and Gabriel G. Ramírez

Financial Markets, Institutions & Instruments, 2007, vol. 16, issue 5, 221-242

Abstract: This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.

Date: 2007
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https://doi.org/10.1111/j.1468-0416.2007.00125.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:finmar:v:16:y:2007:i:5:p:221-242

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