Bank monitoring and the pricing of corporate public debt 1 We thank Atul Gupta, Robyn McLaughlin, Tim Mech, David P. Simon, and especially Bill Schwert (the editor), and Peggy Wier (the referee) for their valuable comments. The third author acknowledges partial financial support from the Babcock Summer Research Program. The usual disclaimer applies. 1

Bank monitoring and the pricing of corporate public debt 1 We thank Atul Gupta, Robyn McLaughlin,... We examine whether the existence of a bank/firm relationship lowers the cost of public debt financing. Using a sample of first public straight debt offers, we test the cross-monitoring effect of bank debt and Diamond's (1991, Journal of Political Economy, 99, 689–721) reputation-building argument. We find that the existence of bank debt lowers the at-issue yield spreads for first public straight bond offers by about 68 basis points, on average. Consistent with Diamond's reputation-building argument, we document that firm reputation is negatively related to the at-issue yield spread for initial public debt offers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Bank monitoring and the pricing of corporate public debt 1 We thank Atul Gupta, Robyn McLaughlin, Tim Mech, David P. Simon, and especially Bill Schwert (the editor), and Peggy Wier (the referee) for their valuable comments. The third author acknowledges partial financial support from the Babcock Summer Research Program. The usual disclaimer applies. 1

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Publisher
Elsevier
Copyright
Copyright © 1999 Elsevier Science S.A.
ISSN
0304-405x
DOI
10.1016/S0304-405X(98)00060-9
Publisher site
See Article on Publisher Site

Abstract

We examine whether the existence of a bank/firm relationship lowers the cost of public debt financing. Using a sample of first public straight debt offers, we test the cross-monitoring effect of bank debt and Diamond's (1991, Journal of Political Economy, 99, 689–721) reputation-building argument. We find that the existence of bank debt lowers the at-issue yield spreads for first public straight bond offers by about 68 basis points, on average. Consistent with Diamond's reputation-building argument, we document that firm reputation is negatively related to the at-issue yield spread for initial public debt offers.

Journal

Journal of Financial EconomicsElsevier

Published: Mar 1, 1999

References

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