Bank monitoring and the pricing of corporate public debt

lWe examine whether the existence of a bank/firm relationship lowers the cost of public debt financing, Using a sample of first public straight debt offers, we test the cross-monitoring effect of bank debt and Diamond's (1991, Journal of Political Economy, 99, 689-721) reputation-building argument. We find that the existence of bank debt lowers the at-issue yield spreads for first public straight bond offers by about 68 basis points, on average. Consistent with Diamond's reputation-building argument, we document that firm reputation is negatively related to the at-issue yield spread for initial public debt offers. (C) 1999 Elsevier Science S.A. All rights reserved.