Managerial Ability and Bank-Loan Pricing

46 Pages Posted: 24 May 2017

See all articles by Gus De Franco

Gus De Franco

Purdue University

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Haihao Lu

University of Waterloo

Multiple version iconThere are 2 versions of this paper

Date Written: May 23, 2017

Abstract

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 U.S. 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 relation 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.

Keywords: Managerial ability, bank-loan pricing, fundamentals, disclosure, path analysis

JEL Classification: G30, G31, G32, G34, M10, M40, M41

Suggested Citation

De Franco, Gus and Hope, Ole-Kristian and Lu, Haihao, Managerial Ability and Bank-Loan Pricing (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2972668 or http://dx.doi.org/10.2139/ssrn.2972668

Gus De Franco

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Haihao Lu

University of Waterloo ( email )

Toronto, ON
Canada

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