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Article
Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms
Financial Markets, Institutions and Instruments
  • Lucy Ackert, Kennesaw State University
  • Rongbing Huang, Kennesaw State University
  • Gabriel G. Ramirez, Kennesaw State University
Document Type
Article
Publication Date
11-1-2007
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.

Digital Object Identifier (DOI)
10.1111/j.1468-0416.2007.00125.x
Citation Information
Ackert, Lucy F., Rongbing Huang, and Gabriel G. RamĂ­rez. "Information Opacity, Credit Risk, and the Design of Loan Contracts for Private Firms." Financial Markets, Institutions & Instruments 16.5 (2007): 221-242.