Public firms generally obtain significantly lower borrowing costs compared to private companies because they have greater bargaining power and being listed is associated with greater transparency. This work verifies whether the loan cost advantages of public borrowers depend on financial market conditions. The analysis employs a sample of syndicated loans granted to European public and private companies between 2004 and 2016.
The results show that the loan cost advantage of public borrowers declines after a rise in financial instability, measured by the VSTOXX index. The effect can be explained by the weakening in the bargaining power of public firms and in the information benefits of being listed on a market due to a worsening of financial market conditions.
