The Institutional Structure and the Cost of Bank Loans: an International Comparison

In recent years international comparisons emphasized the importance of institutional and legal factors in capital market development and the performance of private firms. Here that approach is applied to the pricing of bank loans. Loan rates depend on contract parameters such as risk, the existence of covenants and loan size. Syndicate structure and the number of lenders also determine the cost of borrowing. Loan prices are also negatively impacted if the lending banks operate as part of larger conglomerates. Loan prices are also shown to depend on a number of institutional factors, such as the quality of protection of creditor rights and the quality of law enforcement. Curiously, we find that contracts with customers in "French tradition" countries were priced lower, as if having lower risk, than others, other things held equal. This is not in line with other segments of the literature on international capital market differences and institutional factors. It suggests that differences across legal traditions are more complicated than previously understood

Determinants of the Development of Corporate Bond Markets in Argentina: One Size Does Not Fit All

Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. We find both in our econometric evidence for firms quoted on Latin American stock exchanges, and in our survey results for Argentina, that size of assets is a robust determinant of the use of bond finance. This result, together with the fact that there are few firms that are large in terms of market value, can help understand why Argentina, as well as Latin America, has small bond markets in terms of the ratio of the stock of bonds to GDP. Since firm value represents the present value of the cash flows against which the firm borrows, the outstanding stock of corporate bonds is as small as the size of Argentine firms