Managerial Style and Bank Loan Contracting

46 Pages Posted: 22 May 2019 Last revised: 18 Nov 2021

See all articles by Bill Francis

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Yun Zhu

St. John's University - Department of Economics and Finance

Date Written: November 20, 2013

Abstract

This paper provides direct evidence that managerial style is a key determinant of the firm's cost of capital, in the context of private debt contracting. Applying the novel empirical method by Abowd, Karmarz, and Margolis (1999) to a large sample that tracks job movement of top managers, we find that managerial style is a critical factor that explains a large part of the variation in loan contract terms. The loan-term-related managerial styles correlate with managerial styles of firm performance and corporate decisions, implying that certain managers achieve better firm performance via lower cost of capital and other desirable non-price loan terms. We further find direct evidence that banks "follow" managers' job changes and offer loan contracts with preferential terms to their new firms. Some of the preferred managerial styles reflect managers' personal characteristics, such as managerial ability, authority and conservatism

Suggested Citation

Francis, Bill and Hasan, Iftekhar and Zhu, Yun, Managerial Style and Bank Loan Contracting (November 20, 2013). Bank of Finland Research Discussion Paper No. 29/2013, Available at SSRN: https://ssrn.com/abstract=3391723

Bill Francis (Contact Author)

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Yun Zhu

St. John's University - Department of Economics and Finance ( email )

Jamaica, NY 11439
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
65
Abstract Views
653
Rank
617,745
PlumX Metrics