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

Paulo P. Alves; M. Ricardo Cunha; Luís K. Pacheco; João M. Pinto

doi:10.1007/s10693-021-00355-y

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

Paulo P. Alves, M. Ricardo Cunha, Luís K. Pacheco, João M. Pinto^*

^*Autor correspondente para este trabalho

Resultado de pesquisa › revisão de pares

2 Citações (Scopus)

143 Transferências (Pure)

Resumo

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.

Idioma original	English
Páginas (de-até)	163-200
Número de páginas	38
Revista	Journal of Financial Services Research
Volume	62
Número de emissão	3
DOIs	https://doi.org/10.1007/s10693-021-00355-y
Estado da publicação	Publicado - dez. 2022

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Acesso ao documento

10.1007/s10693-021-00355-y

28772701Accepted author manuscript, 3,4 MBLicença: Unspecified

http://hdl.handle.net/10400.14/33800Licença: Unspecified

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Link to publication in Scopus

CEGE: Research Center in Management and Economics
Silva, M. (Professor Catedrático), Sousa, R. (Professor Catedrático), Alves, P. (Professor Auxiliar), Madsen, A. (Professor Auxiliar Convidado), Lourenço, A. (Professor Associado), Carvalho, A. S. (Professor Associado), Andrade, A. (Professor Auxiliar), Silva, P. D. (Professor Associado), Vlačić, B. (Professor Auxiliar Convidado), Martins, C. (Professor Auxiliar Convidado), Gomes, C. (Investigador Auxiliar), Gevrek, Z. E. (Professor Auxiliar Convidado), Oliveira, F. G. D. (Professor Associado), Faria, G. (Professor Associado Convidado), Marreiros, H. (Bolseiro), Pinho, J. (Professor Auxiliar Convidado), Machado, J. (Professor Associado), Araújo, J. (Investigador Auxiliar), Pinto, J. (Professor Auxiliar), Rego, A. (Professor Catedrático), Gaspar, J. M. (Investigador Auxiliar), Corbo, L. (Professor Auxiliar Convidado), Costa, L. (Professor Associado), Fernandes, L. (Professor Auxiliar), Sottomayor, M. (Professor Auxiliar), Martins, N. (Professor Catedrático), Hernández-Marrero, P. (Investigador Auxiliar), Gonçalves, R. (Professor Associado), Ribeiro, R. (PI), Coelho, S. L. (Docente Assistente), Pereira, S. M. (Investigador Auxiliar), Silva, S. (Professor Associado), Rodrigues, V. (Professor Associado), Sotiros, D. G. (Investigador Auxiliar), Valverde, C. (Professor Auxiliar), Leitão, A. (Professor Auxiliar), Julião, J. (Professor Auxiliar), Tavares, M. (Professor Auxiliar), Lages, C. R. (Investigador Auxiliar), Elmashhara, M. G. (Investigador Auxiliar) & Teymourifar, A. (Investigador Auxiliar)
1/01/20 → 31/12/24
Projeto

Citação

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title = "How banks price loans for LBOs: an empirical analysis of spread determinants",

abstract = "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.",

keywords = "Loan pricing, LBOs, Financial crisis, Market-based, Term structure of spreads",

author = "Alves, {Paulo P.} and Cunha, {M. Ricardo} and Pacheco, {Lu{\'i}s K.} and Pinto, {Jo{\~a}o M.}",

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month = dec,

doi = "10.1007/s10693-021-00355-y",

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T1 - How banks price loans for LBOs

T2 - an empirical analysis of spread determinants

AU - Alves, Paulo P.

AU - Cunha, M. Ricardo

AU - Pacheco, Luís K.

AU - Pinto, João M.

PY - 2022/12

Y1 - 2022/12

N2 - 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.

AB - 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.

KW - Loan pricing

KW - LBOs

KW - Financial crisis

KW - Market-based

KW - Term structure of spreads

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ER -

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

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CEGE: Research Center in Management and Economics

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