The study on bank loans and debt financing cost of Taiwan's listed companies

[[abstract]]This study investigates whether the long-term relationship of loan between public company and its financing banks in Taiwan could reduce the debt cost of capital and increase the performance on firm’s return. For comparison, the debt cost of capital is measured by the loan spread which is the difference between the interest rate on individual loan and the average interest rate on the same financing banks. The results show that financing bank is able to effectively obtain the company’s inside information according to the trading experiences in the past when the long-term relationship of loan is more closely integrated with its corresponding company. As a result, the closer long-term relationship of loan between public company and banks could reduce the debt cost of capital and improve the problem of asymmetric information