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Skip Navigation Oxford Journals Contact Us My Basket My Account Review of Financial Studies About This Journal Contact This Journal Subscriptions View Current Issue (Volume 23 Issue 8 ) Archive Search Oxford Journals Social Sciences Review of Financial Studies RFS Advance Access 10.1093/rfs/hhn111 RFS Advance Access published online on December 23, 2008 Review of Financial Studies, doi:10.1093/rfs/hhn111 This Article Full Text Full Text (Accepted Manuscript) All Versions of this Article: 22/8/2973 most recent hhn111v1 Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Add to My Personal Archive Download to citation manager Request Permissions Citing Articles Scopus Links Citing Articles via CrossRef Google Scholar Articles by Chava, S. Articles by Purnanandam, A. Search for Related Content Social Bookmarking What's this? © The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org. Do Shareholder Rights Affect the Cost of Bank Loans? Sudheer Chava Mays School of Business, Texas A&M University Dmitry Livdan Haas School of Business, University of California at Berkeley Amiyatosh Purnanandam Ross School of Business, University of Michigan Send correspondence to Sudheer Chava, Mays School of Business, Texas A&M University, College Station, TX 77843; telephone: 979- 845-3656; fax: 979-845-3884; E-mail: schava{at}mays.tamu.edu. JEL Classification: G32, G34, G21 Abstract Using a large sample of bank loans issued to U.S. firms between 1990 and 2004, we find that lower takeover defenses (as proxied by the lower G-index of Gompers, Ishii, and Metrick 2003) significantly increase the cost of loans for a firm. Firms with lowest takeover defense (democracy) pay a 25% higher spread on their bank loans as compared with firms with the highest takeover defense (dictatorship), after controlling for various firm and loan characteristics. Further investigations indicate that banks charge a higher loan spread to firms with higher takeover vulnerability mainly because of their concern about a substantial increase in financial risk after the takeover. Our results have important implications for understanding the link between a firm's governance structure and its cost of capital. Our study suggests that firms that rely too much on corporate control market as a governance device are punished by costlier bank loans. We thank Yakov Amihud, Sreedhar Bharath, Sugato Bhattacharya, Michael Brennan, Martijn Cremers, Martin Dierker, Michael Fishman, Simon Gervais, Tom George, Joao Gomes, Shane Johnson, Han Kim, Praveen Kumar, Leonid Kogan, Uday Rajan, Bhaskaran Swaminathan, Stuart Turnbull, and Amir Yaron for helpful discussions and comments. We also thank Andrew Metrick for providing us the G-index data. We are especially grateful to an anonymous referee and the editor (Tobias Moskowitz) for many insightful comments that have greatly improved the paper. Sudheer Chava and Dmitry Livdan were at the University of Houston when the earlier drafts of the paper were written. CiteULike Connotea Del.icio.us What's this? Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department. Online ISSN 1465-7368 - Print ISSN 0893-9454 Copyright © 2010 Society for Financial Studies Oxford Journals Oxford University Press Site Map Privacy Policy Frequently Asked Questions Other Oxford University Press sites: Oxford University Press
