This work examines whether the loan rates applied to public companies by banks adopting the internal ratings-based (IRB) approach are more sensitive to financial market conditions compared with those applied to private firms. The analysis examines interest rates on loans granted to Italian firms between 2008 and 2018, comparing IRB banks with those adopting the standardized approach (SA).
The findings show that the interest rates on loans granted by IRB banks are lower for public companies than for private ones; the loan cost advantage of public borrowers decreases significantly as financial market volatility rises. In contrast, for credit granted by SA banks, public companies do not benefit from a significant loan cost advantage compared with private companies, and a change in financial market conditions has a similar impact on loan rates for both types of firms.
