The effect of bond IPOs on banks informational rents
Modern corporate finance theory argues that, although bank monitoring is beneficial to borrowers, the private information that banks gain from monitoring lets them holdup borrowers for higher interest rates. In this paper, we seek empirical evidence for this information hold-up cost. Since new information about a firms creditworthiness is revealed at the time of its first issue in the public bond market, it follows that after firms undertakes their bond IPO, banks with an exploitable information advantage will be forced to adjust their loan interest rates downwards, in particular for the firms that are revealed to be safe. We test this by comparing banks loan pricing policies before and after borrowers gain access to public debt markets, and use a matched-sample methodology to account for the endogeneity of the sample of bond IPO firms. Consistent with our hypothesis, we find that firms are able to borrow from banks at lower interest rates after they issue for the first time in the public bond market and that the magnitude of these savings is economically significant for firms whose bond IPO is rated investment grade. We also find supporting evidence for our assumption that new information is revealed about the firm at the time of its bond IPO. Finally, we find that it is costly to firms, even to those whose bond IPO is rated investment grade, to enter the public bond market because they pay higher underwriting costs on their IPO bonds and because their IPO bonds are subject to underpricing when they first trade in the secondary bond market. These costs may be a reason why not all firms choose to enter the public bond market, despite the aforementioned benefits of accessing this funding source.
Informational rents loan spreads bond IPO bond spreads bank relationships
Galina Hale Joao A. C. Santos
Research Department Federal Reserve Bank of San Francisco 101 Market St.Ms 1130 San Francisco,CA 941 Research Department Federal Reserve Bank of New York 33 Liberty St.New York,NY 10045
国际会议
大连
英文
1-43
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）