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Title: Property Rights Protection and Bank Loan Pricing
Authors: Bae, Kee-Hong
Goyal, Vidhan K.
Keywords: property rights
creditor rights
investor protection
loan spreads
Issue Date: Jul-2003
Abstract: We use data from 37 countries to examine how property rights affect loan spreads (over LIBOR or prime) in international bank loans. We find that banks charge higher loan spreads when property rights are weaker. These effects are economically large. If a country improved its property rights protection from the 25th percentile to the 75th percentile, loan spreads would decline by 87 basis points. Governance mechanisms at the firm level affect loan spreads too, but these are second-order effects. An implication of these findings is that improvement in the cost of external financing will be greater with policies that improve property rights protection at the country level than with policies that aim at improving governance mechanisms at the firm level.
Appears in Collections:FINA Working Papers

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