Logo
Munich Personal RePEc Archive

Loan syndication under Basel II: How do firm credit ratings affect the cost of credit?

Hasan, Iftekhar and Kim, Suk-Joong and Politsidis, Panagiotis and Wu, Eliza (2021): Loan syndication under Basel II: How do firm credit ratings affect the cost of credit?

[thumbnail of MPRA_paper_107083.pdf]
Preview
PDF
MPRA_paper_107083.pdf

Download (1MB) | Preview

Abstract

This paper investigates how lenders react to borrowers’ rating changes under heterogeneous conditions and different regulatory regimes. Our findings suggest that corporate downgrades that increase capital requirements for lending banks under the Basel II framework are associated with increased loan spreads and deteriorating non-price loan terms relative to downgrades that do not affect capital requirements. Ratings exert an asymmetric impact on loan spreads, as these remain unresponsive to rating upgrades, even when the latter are associated with a reduction in risk weights for corporate loans. The increase in firm borrowing costs is mitigated in the presence of previous bank-firm lending relationships and for borrowers with relatively strong performance, high cash flows and low leverage.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.