1 Insiders Ownership Concentration and Firms Cost of Debt: Evidence from Bank Loans

Abstract This paper investigates the relationship between insiders ownership concentration and firms cost of borrowing. Building on asset substitution and market for corporate control theories, we predict and show empirical evidence of a non-monotonic relationship, with cost of bank loans increasing and then decreasing with the level of ownership concentration. Leverage and anti-takeover provisions are found to moderate the relationship in a coherent fashion with the proposed theoretical arguments. Finally, we show that – while more costly – financial covenants are more effective than performance pricing clauses in reducing the sensitivity of loan prices to the ownership structure of the borrower