[Research Seminar 2017.06.15] Informed Equity Ownership and Bank Loan Contracting

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[Research Seminar 2017.06.15] Informed Equity Ownership and Bank Loan Contracting

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Speaker’s Name: Yi, Ha-Chin(Associate Prof./ Texas State University)

 

 

Abstract

We take local institutional equity ownership as a proxy for informed and likely exogenous ownership and study the effect of informed equity ownership on creditors.For bank loan contracting, we show that local long-term institutional ownership (LLTIO) is associated with (1) a lower spread, (2) less stringent collateral requirement, and (3) less covenant intensity when shareholder-creditor conflicts of interest are unlikely and substituting monitoring devices are not in place. Our results are robust to endogeneity tests and suggest that presence of LLTIO implies long-term commitment to monitoring, which alleviates costly information asymmetry and leads to more favorable loan terms.

Keywords: bank loan, monitor, local, institutional ownership