Lender Certification Premiums
33 Pages Posted: 27 May 2003
The announcement of a bank loan by a borrowing firm has been shown to have a positive effect on the market value of the borrower's claims. This is consistent with a lender's implied endorsement of the borrower - an endorsement that has value to the borrower. In this paper, we investigate whether the lender is able to extract a premium loan rate or certification premium in return. We find empirical evidence that in the absence of collateral reputable lenders are able to exact a certification premium.
Keywords: Bank Lending, Certification, Loan Pricing
JEL Classification: G21
Suggested Citation: Suggested Citation