Delis, M. D. and Hong, S. and Paltalidis, N. and Philip, D. (2021) 'Forward Guidance and Corporate Lending.', Review of Finance .
We suggest that forward guidance, via publicly committing the central bank to future actions and creating associated expectations, fundamentally affects bank lending decisions independently of other forms of monetary policy. To test this hypothesis, we build a forward guidance measure based on the language used in the Federal Open Market Committee meetings and match this measure with syndicated loans. Our results show that expansionary forward guidance decreases corporate loan spreads and that this effect is stronger for well-capitalized banks lending to riskier firms. Forward guidance also affects nonprice lending terms, such as covenants, performance pricing provisions, and the loan syndicate structure. Additionally, banks tend to initiate new lending relationships with lower spreads after forward guidance issuance.
|Full text:||Publisher-imposed embargo |
(AM) Accepted Manuscript
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|Publisher Web site:||https://academic.oup.com/rof|
|Date accepted:||01 September 2021|
|Date deposited:||07 September 2021|
|Date of first online publication:||2021|
|Date first made open access:||No date available|
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