Abstract

This paper examines the impact of managerial ability on bank loan contracting. We find that firms with higher‐ability managers obtain more favourable loan contract terms, including lower loan spreads, fewer covenants, and more short‐term maturities. Furthermore, the negative relation between managerial ability and loan spread is concentrated in firms with higher information asymmetry, higher default risk, or lower agency costs of debt. Finally, we find that firms with higher‐ability managers are more likely to choose public bonds over bank loans.

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