How banks price loans for LBOs: an empirical analysis of spread determinants

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This paper examines which factors determine the pricing of loans for LBOs, using a worldwide sample of 11,111 loans closed in the 2000–2016 period. Our findings are consistent with the hypotheses that loans for LBOs extended to borrowers in market- versus bank-based financial systems are differently priced, and that law and institutional characteristics are important determinants of spreads for deals closed in market-oriented countries. Despite LBO loan pricing differing significantly in normal versus crisis times, loans extended to borrowers in market-based financial systems have higher spreads than those where banks play a major role. Our results also support the hypothesis of tranching as a mechanism of reducing spreads by completing financial markets and mitigating informational asymmetries. Finally, a robust convex relationship between spread and maturity is found, suggesting higher market competition by banks and investors for standard, medium-term maturities.
Original languageEnglish
Pages (from-to)163-200
Number of pages38
JournalJournal of Financial Services Research
Issue number3
Publication statusPublished - Dec 2022


  • Loan pricing
  • LBOs
  • Financial crisis
  • Market-based
  • Term structure of spreads


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