The Value of Bank Lending

Thomas Flanagan
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Thomas Flanagan: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Using a novel dataset of realized syndicated loan cash-flows and a risk-adjustment methodology adapted from the private equity literature, I provide a measure of risk-adjusted returns for bank loan cash-flows. Banks, on average, generate 190 bps in gross risk-adjusted returns and earn higher returns when they lend to financially constrained borrowers. However, shareholders earn nearly zero net risk-adjusted returns once bank staff are compensated for their effort in lending. Overall, these findings offer evidence that banks provide valuable services to mitigate borrowers' financing frictions, and the present value of loan cash-flows pays for the costs of the bank providing these services.

JEL-codes: G12 G21 (search for similar items in EconPapers)
Date: 2023-12
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-17

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