Finance Job Talk: Informational Spillovers from Credit Lines to Term Loans
Research Seminars
Academic Areas Finance
Charu Agarwal, University of Illinois, Urbana-Champaign
November 15, 2013
| 4:30 PM - 6:00 PM | Friday
AC 8 Mini Lecture Theatre (MLT), Hyderabad, India
Contact: Bharathi Satyanarayana,
Bharathi_Satyanarayana@isb.edu
Bharathi_Satyanarayana@isb.edu
Open to Public
Charu Agarwal, PhD Candidate, University of Illinois, Urbana-Champaign
This paper analyzes the information spillover from the line of credit (LoC) to term loan that firm contracts from a single or a group of lenders. The information asymmetry between the borrower and the lender is dynamic and it is costly to acquire updated information about the borrower. Having a LoC facilitates the information collection that is timely and relevant to assess a borrower continually. This information associated with loan pricing is not incorporated in the loan rating, is significant when LoC and the term loan share at least one lead arranger, and stays significant in the relational lending
This paper analyzes the information spillover from the line of credit (LoC) to term loan that firm contracts from a single or a group of lenders. The information asymmetry between the borrower and the lender is dynamic and it is costly to acquire updated information about the borrower. Having a LoC facilitates the information collection that is timely and relevant to assess a borrower continually. This information associated with loan pricing is not incorporated in the loan rating, is significant when LoC and the term loan share at least one lead arranger, and stays significant in the relational lending
