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Managerial ability and bank‐loan pricing
Author(s) -
Franco Gus,
Hope OleKristian,
Lu Haihao
Publication year - 2017
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12267
Subject(s) - loan , business , information asymmetry , channel (broadcasting) , participation loan , financial system , non performing loan , finance , economics , electrical engineering , engineering
This paper examines the impact of borrowers’ managerial ability on lenders’ bank‐loan pricing and the channels through which managerial ability affects bank‐loan pricing. Using a large sample of US bank loans, we provide evidence that higher managerial ability is associated with lower bank‐loan prices. This effect is stronger in firms with high information risk, suggesting that an important channel for managerial ability to affect bank‐loan pricing is through improved financial disclosure to mitigate information asymmetry. The relationship is also stronger for firms with weak business fundamentals, implying that another channel is through improved business performance. Of these two mechanisms, path analysis suggests that the business‐fundamentals mechanism is the more important channel through which managerial ability affects bank‐loan pricing.