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The loan cost advantage of public firms and financial market conditions: evidence from the European syndicated loan market

Raffaele Gallo

No 1255, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyses the relationship between financial market conditions and the loan cost advantage of being a public firm, verifying whether the borrowing costs for public companies are more sensitive to the financial market climate than those of private firms. The analysis examines the spread of syndicated loans granted to European non-financial firms between 2004 and 2016. The results indicate that a rise in financial instability, proxied by the VSTOXX index, leads to an increase in loan spreads greater for public borrowers than for private ones. The decline in the loan cost benefit of public firms during high volatility periods is due to a weakening in their bargaining power (bargaining power channel) and in the information benefits of being listed on a market (transparency channel). Moreover, a well-developed stock market in the borrower’s home country significantly mitigates the increase in public firms’ borrowing costs observed following a worsening of financial market conditions.

Keywords: financial instability; syndicated loan; public firm; loan spread; financial markets (search for similar items in EconPapers)
JEL-codes: G10 G20 G21 G32 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cfn and nep-fmk
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