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Inter-market competition and bank loan spreads: Evidence from the securities offering reform

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  • Gustafson, Matthew T.

Abstract

I provide evidence of a new mechanism by which access to public securities mitigates the bank hold-up problem and reduces loan spreads – it increases a borrower's bargaining power vis-à-vis a lender by offering a bank loan substitute. Difference-in-differences results indicate that loan spreads decline following legislation that makes public securities more attractive, but only when public securities represent a credible substitute for the bank loan (i.e., for term loans taken out by credit rated borrowers). Spreads on revolving lines of credit, which are more complementary with public securities, increase.

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  • Gustafson, Matthew T., 2018. "Inter-market competition and bank loan spreads: Evidence from the securities offering reform," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 107-117.
    • Handle: RePEc:eee:jbfina:v:94:y:2018:i:c:p:107-117
    DOI: 10.1016/j.jbankfin.2018.07.008
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