| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5100564 | Journal of Financial Economics | 2017 | 22 Pages |
Abstract
Despite the importance of banks' role as delegated monitors, little is known about how non-price terms of loan contracts are structured to optimize information production in a lending relationship. Using a large sample of corporate loans, this paper examines the effect of relationship lending on covenant choice. Consistent with information asymmetry theories, covenant tightness is relaxed over the duration of a relationship, especially for opaque borrowers. In contrast, the effect of lending relationship intensity on the number of covenants included in a loan follows an inverted U shape. I discuss potential explanations for this finding.
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Authors
Robert Prilmeier,