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Bank loans and banks’ corporate control: evidence for Portugal
Miguel A. Ferreira
Banks’ corporate control of firms is likely to increase the likelihood of providing a future loan as it mitigates information asymmetry and agency costs of debt. Using a sample of retail loans to Portuguese firms, we find that a bank corporate control enhances the probability of providing a future loan by 10 percentage points relative to a relationship lender with no control. This finding is robust to the inclusion of many firm-level controls and to instrumental variable methods to correct for the potential endogeneity of banks’ equity stakes in borrower firms. The effect is lower when the borrower has multiple lending relationships or multiple banks as shareholders. Our results suggest that banks’ corporate control affect the choice of the lender in the corporate loan market.