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Capital market access and corporate loan structure

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  • K. Khang
  • T. D. King

Abstract

In this article, we use a sample of 14 075 loan packages issued between 1993 and 2007 to examine if borrower access to external capital markets influences corporate loan structure. We classify firms into three access categories: private, unrated public and rated public. Private firms have the lowest access, and to date, no large sample investigation of their loans has been done in the literature. Rated public firms access the capital markets the most. We find the level of access influences loan structure in ways that are consistent with having greater or fewer financing alternatives, as well as theories on information asymmetry, agency and monitoring. In particular, loans to firms with higher levels of access have shorter maturities, fewer loan facilities per package, and a lower probability of being secured. We also find that a higher level of access results in a higher incidence of single-lender loans, but among multiple-lender loans, it leads to a larger number of lenders. Furthermore, we find evidence that access affects financial covenants in a nonmonotonic manner. Finally, lender type and economic conditions influence loan structure. Our results are robust to endogeneity caused by simultaneity of contract terms and rating.

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  • K. Khang & T. D. King, 2015. "Capital market access and corporate loan structure," Applied Economics, Taylor & Francis Journals, vol. 47(4), pages 374-397, January.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:4:p:374-397
    DOI: 10.1080/00036846.2014.972544
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    2. Orman, Cüneyt & Bülent, Köksal, 2015. "Structure of Debt Maturity across the Firm Type Spectrum," MPRA Paper 64860, University Library of Munich, Germany.
    3. Cuneyt Orman & Bulent Koksal, 2015. "Structure of Debt Maturity across Firm Types," Working Papers 1521, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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