The role of bank lenders in firm leverage adjustments

Author ORCID Identifier

Wenlian Gao: https://orcid.org/0000-0003-0795-9890

Publication Title

Journal of Financial Research

ISSN

02702592

E-ISSN

14756803

Document Type

Article

Abstract

In this article we examine the impact of bank loan characteristics on firm leverage adjustments, with a special focus on the conflicts of interest between shareholders and creditors. The results show that, on average, more bank loans slow down leverage adjustments. The subsample analysis reveals that bank loans slow down leverage adjustments in underlevered firms but speed up adjustments in overlevered firms. This finding suggests that bank lenders are able to limit their risk exposure in borrowers and protect their own rights. Further evidence indicates that the effect of bank loans is more notable during the global financial crisis and when a firm is financially constrained. Bank loan concentration and maturity have a significant impact on leverage adjustments as well.

Publication Date

1-1-2022

DOI

10.1111/jfir.12307

Original Citation

Gao, W., Zhu, F., & Chen, K. (2022). The role of bank lenders in firm leverage adjustments. Journal of Financial Research, 1– 35. https://doi.org/10.1111/jfir.12307

Department

Department of Finance

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