Working Paper Revision
An Empirical Analysis of the Cost of Borrowing
Abstract: We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of the cost of financing, the Excess Debt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 97 basis points cheaper than corporate bonds when controlling for observable characteristics. Second, there is significant dispersion in borrowing costs, even within the same firm and quarter. The analysis reveals that this within firm variation persists after accounting for instrument type, maturity, amount, and lender identity, suggesting substantial heterogeneity in the cost of debt across different financing instruments.
JEL Classification: E6; G1; H0;
https://doi.org/10.20955/wp.2024.016
Access Documents
File(s):
File format is application/pdf
https://doi.org/10.20955/wp.2024.016
Description: Full text
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2025-11-03
Number: 2024-016
Related Works
- Working Paper Revision (2025-11-03) : You are here.
- Working Paper Original (2024-07-15) : An Empirical Analysis of the Cost of Borrowing
- Working Paper Revision (2024-07-15) : An Empirical Analysis of the Cost of Borrowing