Bank competition and the cost of bank loans

Yili Lian

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

I comprehensively study the effect of bank competition on the cost of bank loans using U.S. bank loan data from 1995 to 2010. The cost of bank loans is analyzed with regard to loan spreads and covenant intensity. I show that loan spreads and covenant intensity are negatively related to bank competition. I also find that non-investment grade and financially constrained firms benefit more from bank competition than investment grade and financially unconstrained firms do. Lenders with low market power are more willing to reduce loan price than lenders with high market power in competitive lending markets. The results suggest that lenders give favorable loan terms to borrowers in competitive loan markets.

Original languageEnglish (US)
Pages (from-to)253-282
Number of pages30
JournalReview of Quantitative Finance and Accounting
Volume51
Issue number1
DOIs
StatePublished - Jul 1 2018

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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