Prestige and loan pricing

We find that prestigious companies pay lower spreads and upfront fees on their loans despite the fact that prestige does not predict default risk over the life of the loan. Using survey data on firm-level prestige, we sh
We find that prestigious companies pay lower spreads and upfront fees on their loans despite the fact that prestige does not predict default risk over the life of the loan. Using survey data on firm-level prestige, we show that a one standard deviation increase in prestige reduces loan spreads by 6.18% per year and upfront fees by 22.86%. We identify causal effects (i) using fraud by industry peers as an instrument for borrower prestige and (ii) exploiting a regression discontinuity around rank 100 of the prestige survey. Banks that lend to prestigious firms attract more business afterwards compared to otherwise similar institutions. Moreover, the effect of prestige on upfront fees is particularly strong for new bank relationships. Our findings suggest that prestigious firms receive cheaper funding because the associated lending relationship helps banks establish valuable credentials they use to compete for future borrowers.
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Metadaten
Author:Alexander Muermann, Thomas Rauter
URN:urn:nbn:de:hebis:30:3-416830
URL:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2850570
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 544
Series (Serial Number):CFS working paper series (544)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2016
Year of first Publication:2016
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2016/10/18
Tag:Bank Incentives; Firm Prestige; Loan Pricing
Issue:January 28, 2016
Pagenumber:52
Note:
First Version: October 19, 2015
This Version: January 28, 2016
HeBIS PPN:390270962
Institutes:Wirtschaftswissenschaften
Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G21 Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G30 General
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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