The cost of growth: small firms and the pricing of bank loans

Increases in the cost of research, specialization and reductions in public expenditure in health are changing the economic environment for the pharmaceutical industry. Gains in productivity and efficiency are increasingly important in order for firms to succeed in this environment. We analyze empirically the performance of efficiency in the pharmaceutical industry over the period 2010–2018. We work with microdata from a large sample of European firms of different characteristics regarding size, main activity, country of origin and other idiosyncratic features. We compute efficiency scores for the firms in the sample on a yearly basis by means of non-parametric data envelopment analysis (DEA) techniques. Basic results show a moderate average level of efficiency for the firms which encompass the sample. Efficiency is higher for companies which engage in manufacturing and distribution than for firms focusing on research and development (R&D) activities. Large firms display higher levels of efficiency than medium-size and small firms. Our estimates point to a decreasing pattern of average efficiency over the years 2010–2018. Furthermore, we explore the potential correlation of efficiency with particular aspects of the firms’ performance. Profit margins and financial solvency are positively correlated with efficiency, whereas employee costs display a negative correlation. Institutional aspects of the countries of origin also influence efficiency levels.

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Do Shareholder Rights Affect the Cost of Bank Loans?

Review of Financial Studies ◽

10.1093/rfs/hhn111 ◽

2008 ◽

Vol 22 (8) ◽

pp. 2973-3004 ◽

Cited By ~ 186

Author(s):

Sudheer Chava ◽

Dmitry Livdan ◽

Amiyatosh Purnanandam

Keyword(s):

Bank Loans ◽

Shareholder Rights ◽

The Cost

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Does trust matter for the cost of bank loans?

Journal of Corporate Finance ◽

10.1016/j.jcorpfin.2020.101791 ◽

2021 ◽

Vol 66 ◽

pp. 101791

Author(s):

Celia Álvarez-Botas ◽

Víctor M. González

Keyword(s):

Bank Loans ◽

The Cost

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ESG Scores and the Credit Market

Sustainability ◽

10.3390/su12083456 ◽

2020 ◽

Vol 12 (8) ◽

pp. 3456 ◽

Cited By ~ 4

Author(s):

Ga-Young Jang ◽

Hyoung-Goo Kang ◽

Ju-Yeong Lee ◽

Kyounghun Bae

Keyword(s):

Small Firms ◽

Credit Rating ◽

Credit Ratings ◽

Debt Financing ◽

Corporate Bond ◽

Cost Of Debt ◽

Rating Agencies ◽

Bond Returns ◽

The Cost ◽

The Relationship

This study analyzes the relationship between Environmental, Social and Governance (ESG) scores and bond returns using the corporate bond data in Korea during the period of 2010 to 2015. We find that ESG scores include valuable information about the downside risk of firms. This effect is particularly salient for the firms with high information asymmetry such as small firms. Interestingly, of the three ESG criteria, only environmental scores show a significant impact on bond returns when interacted with the firm size, suggesting that high environmental scores lower the cost of debt financing for small firms. Finally, ESG is complementary to credit ratings in assessing credit quality as credit ratings cannot explain away ESG effects in predicting future bond returns. This result suggests that credit rating agencies should either integrate ESG scores into their current rating process or produce separate ESG scores which bond investors integrate with the existing credit ratings by themselves.

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Does the use of tax haven subsidiaries by U.S. multinational corporations affect the cost of bank loans?

Journal of Corporate Finance ◽

10.1016/j.jcorpfin.2020.101663 ◽

2020 ◽

Vol 64 ◽

pp. 101663 ◽

Cited By ~ 1

Author(s):

Grant Richardson ◽

Grantley Taylor ◽

Ivan Obaydin

Keyword(s):

Multinational Corporations ◽

Bank Loans ◽

Tax Haven ◽

The Cost

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Auditor Changes and the Cost of Bank Debt

The Accounting Review ◽

10.2308/accr-51553 ◽

2016 ◽

Vol 92 (3) ◽

pp. 155-184 ◽

Cited By ~ 18

Author(s):

Bill B. Francis ◽

Delroy M. Hunter ◽

Dahlia M. Robinson ◽

Michael N. Robinson ◽

Xiaojing Yuan

Keyword(s):

Financial Reporting ◽

Reporting Quality ◽

Bank Loans ◽

Financial Reporting Quality ◽

Bank Debt ◽

Market Participants ◽

Research Designs ◽

Private Credit ◽

Loan Spreads ◽

The Cost

ABSTRACT We examine the response of informed market participants to the informational signal of auditor changes. Using propensity score matching and difference-in-differences research designs, we document that loan spreads increase by 22 percent on bank loans initiated within a year after auditor changes, increasing direct loan costs by approximately $6.6 million. We also find a significant increase in upfront and annual fees and the probability of pledging collateral, consistent with an increase in screening and monitoring by banks. The increase in spreads is significant for client-initiated auditor changes, with or without disagreements with the auditor, as well as for auditor resignations. Further, the significant increase in loan spreads is documented for upward, lateral, and downward auditor changes. Our results are robust to other proxies for financial reporting quality. Finally, we find no effect resulting from the forced auditor changes due to Arthur Andersen. Collectively, these results suggest that voluntary auditor changes increase information risk, which is priced in private credit markets. JEL Classifications: G20; G21; G32; K22.

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