What firm risk factors drive bank loan pricing and other terms? Evidence from China
Abstract This study investigates how firm risk factors affect bank loan pricing. Although firm‐specific stock price crash risk affects bank loan costs directly, it also prompts other risks, including financial restatement and litigation, which in turn trigger higher bank loan costs. Strong internal...
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| Published in | Accounting and finance (Parkville) Vol. 63; no. 3; pp. 2985 - 3010 |
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| Main Authors | , , , |
| Format | Journal Article |
| Language | English |
| Published |
Clayton
Blackwell Publishing Ltd
01.09.2023
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| Online Access | Get full text |
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| Summary: | Abstract
This study investigates how firm risk factors affect bank loan pricing. Although firm‐specific stock price crash risk affects bank loan costs directly, it also prompts other risks, including financial restatement and litigation, which in turn trigger higher bank loan costs. Strong internal and external governance mechanisms help reduce agency problems and improve information transparency, alleviating the adverse effect of stock price crash risk on loan costs. Our results confirm that bankers take good corporate governance into account in their bank loan decisions. We also show that bond investors price the adverse effect of stock price crash risk, prompting higher corporate bond costs. Futher evidence suggests that banks impose stricter non‐price terms, such as smaller loan size, shorter loan maturity, and a higher likelihood of collateral requirement, on firms with higher crash risk. |
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| ISSN: | 0810-5391 1467-629X |
| DOI: | 10.1111/acfi.13001 |