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A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
      
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Can lenders discern managerial ability from luck? Evidence from bank loan contracts, Journal of Banking and Finance February (2018). Bui, Dien Giau; Chen, Yan-Shing; Hasan, Iftekhar; Lin, Chih-Yung


Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
All authors as text Bui, Dien Giau; Chen, Yan-Shing; Hasan, Iftekhar; Lin, Chih-Yung 
Number of authors
Status Published
Year of publication 2018 
Date 15.02.2018 
Name of article Can lenders discern managerial ability from luck? Evidence from bank loan contracts 
Name of journal Journal of Banking and Finance
Volume of issue 87 
Number of issue February 
Pages 187-201 
Abstract We investigate the effect of managerial ability versus luck on bank loan contracting. Borrowers showing a persistently superior managerial ability over previous years (more likely due to ability) enjoy a lower loan spread, while borrowers showing a temporary superior managerial ability (more likely due to luck) do not enjoy any spread reduction. This finding suggests that banks can discern ability from luck when pricing a loan. Firms with high-ability managers are more likely to continue their prior lower loan spread. The spread-reduction effect of managerial ability is stronger for firms with weak governance structures or poor stakeholder relationships, corroborating the notion that better managerial ability alleviates borrowers’ agency and information risks. We also find that well governed banks are better able to price governance into their borrowers’ loans, which helps explain why good governance enhances bank value.
Free text descriptor in Finnish luotot; korot; kustannukset; hinnoittelu; riskit; pankit; yritykset; johtajat; kyvykkyys; informaatio; 
Free text descriptor in English Managerial ability; The cost of debt; Agency and information risk; Corporate governance; Stakeholder relationship 
JEL-codes G21; G34 
ISSN / e-ISSN 0378-4266 
auki Internet addresses
Additional information Available online 2 October 2017.