Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198816 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7456
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond yields and a decrease in bank lending rates. This finding can be explained with a model that includes costly state verification and a special informational role for banks. To reduce uncertainty, banks acquire additional costly information about borrowers. More information increases the value of the lending relationship and lowers the lending rate. Bond investors demand compensation for the increased risk of firm default.
Subjects: 
uncertainty shocks
financial frictions
relationship banking
bank loan rate setting
information acquisition
JEL: 
E32
E43
E44
G21
Document Type: 
Working Paper
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