Title

Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

11-2007

Abstract

This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.

Journal

Financial Markets, Institutions and Instruments

Journal ISSN

0963-8008

Volume

16

Issue

5

First Page

221

Last Page

242

Digital Object Identifier (DOI)

10.1111/j.1468-0416.2007.00125.x