Borrowers paid higher spreads when they borrowed from banks that are also shareholders.

What is it about?

We investigate the effects of bank control over bank loan terms during the global financial crisis, regardless of whether the bank shareholder is a lender or not. The results suggest that firms with bank shareholders that are non- lenders borrowed at lower interest rates and longer maturities during the period of crisis. However, borrowers paid higher spreads and were offered shorter maturities when they borrowed from banks that are also shareholders. This effect is consistent with banks obtaining private benefits as large shareholders as a consequence of the informational hold- up problems affecting borrowers.

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Photo by Jack Cohen on Unsplash

Photo by Jack Cohen on Unsplash

Why is it important?

We analyze the effect of the presence of large bank shareholders on bank loan terms during the crisis depending on whether the bank shareholder is a lender or not.

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