Private benefits of control and bank loan contracts

Chih-Yung Lin, Wei Che Tsai, Iftekhar Hasan*, Le Quoc Tuan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

This paper investigates whether or not private benefits of control by managers and large shareholders influence the financing cost of firms. Evidence shows that lending banks demand a significantly higher loan spread, higher fees, shorter loan maturity, smaller loan size, stricter covenants, and greater collateral on firms with greater private benefits of control. Results are stronger for firms with weak corporate governance quality, supporting the agency cost viewpoint. Such evidence implies that banks consider higher private benefits of control as a type of agency problem when they make lending decisions.

Original languageEnglish
Pages (from-to)324-343
Number of pages20
JournalJournal of Corporate Finance
Volume49
DOIs
StatePublished - 1 Apr 2018

Keywords

  • Agency problem
  • Bank loan spread
  • Corporate governance
  • Non-price terms
  • Private benefits of control

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