Large shareholders and agency costs of debt. Evidence from Spain

Abstract

This paper analyses the influence of large controlling shareholders on the terms of bank loans for a sample of 984 loans to 261 non-financial Spanish public and private firms over the period 2001-2017. The results show that the presence of large controlling shareholders increases the interest rate spread of bank loans only in public firms, whereas the influence is insignificant for private firms. Similarly, a less evenly balanced distribution of ownership among large shareholders is associated with higher loan spreads for public firms. Our results reveal that large controlling shareholders expropriate wealth from other investors in public firms, in line with the existence of lower benefits for borrowers due to having large controlling shareholders when they have other internal and external mechanisms of control.

Keywords

• Agency costs of debt
• Loan terms
• Large shareholders