Essays on corporate bank loan contracting

<p>This dissertation is comprised of two essays on corporate bank loan contracting. The purpose of the first essay is to investigate the effect of loan's designated purpose on loan agreement contracting terms, as well as to examine whether lenders apply different standards to assess the value of borrower's corporate governance for each type of loan purpose. Using a large sample of private bank loans, the results indicate that both price and non-price loan terms vary significantly by loan purpose. Specifically, the spread yield varies by about 182 basis points (bps) for loans made for different purposes. Further, borrowers of operations loans (commercial paper backup, general corporate purpose, and working capital) are able to reduce their commitment fees by as much as 30%. In addition, restructure loans (acquisition line, debt repayment, leveraged buyout, spinoff, and takeover) are more sensitive to covenant inclusion than operations loans by as much as 39%. Inclusion of sweep restriction covenants significantly reduces spread yield for restructure loans, while financial ratio restrictions reduce spread yield for operations loans. Finally, empirical findings suggest that corporate governance for operations loans is significantly more influential at affecting both price and non-price terms of loan contracts than for restructure loans. ^ The second essay utilizes a hostile takeover framework to examine the effect of board busyness on corporate cost of debt. First, the study establishes an inverse relationship between board busyness and firm's hostile takeover vulnerability by implementing the takeover vulnerability index, which allows for study of the relationship <em>ex ante.</em> Second, the relationship between board busyness and cost of debt is investigated. The results indicate that as the level of board busyness increases, the cost of debt decreases. Economically, the findings suggest that for firms whose board is comprised of 40% busy directors, the spread yield is about 27 bps lower than for firms without busy directors.</p>

Name thesis:degree_name

Doctor of Philosophy (PhD)

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Consumer Science

Year

2014

Author dc:creator

• Pashnyak, Leann G

Contributors dc:contributor

• Sugato Chakravarty
• Richard Widdows
• Jonathan J. Bauchet
• Ron A. Laschever

• Accounting
• Business Administration, Management, and Operations
• Finance and Financial Management

Repository record dc:identifier

https://docs.lib.purdue.edu/open_access_dissertations/345

OAI identifier oai:identifier

oai:docs.lib.purdue.edu:open_access_dissertations-1471