The impact of financial crises on the syndicated loan spreads applied to public and private firms

We investigate the impact of financial crises on the cost of syndicated loans to European public and private firms. We test whether the loan cost advantage of public companies, extensively documented in the literature, decreases significantly during a financial crisis. We found evidence of a greater increase in loan spreads for public firms than for private ones during the global financial crisis and the euro area sovereign debt crisis. This result is consistent with our hypothesis that public firms’ borrowing costs are more sensitive to financial market conditions than those of private companies. Our results hold when we control for relationship banking effects, a different sample composition between crisis and non-crisis periods, and adopting a matched sample.