Firm Life Cycle and Cost of Debt

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2020-08-14
Authors
Amin, Abu
Bowler, Blake
Hasan, Mostafa
Lobo, Gerald
Tresl, Jiri
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Abstract
This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that lending spreads follow a U-shape pattern across the life cycle phases. This pattern is in addition to the variation explained by typical controls. In a multivariate analysis, we find that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (differences of 6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find that the U-shape pattern persists. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks.
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Firm Life Cycle, Cost Of Debt, Bank Loans, Risk
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