We examine whether the existence of a bank/Þrm relationship lowers the cost of public
debt Þnancing. Using a sample of Þrst public straight debt o¤ers, we test the crossmonitoring
e¤ect of bank debt and DiamondÕs (1991, Journal of Political Economy, 99,
689Ð721) reputation-building argument. We Þnd that the existence of bank debt lowers
the at-issue yield spreads for Þrst public straight bond o¤ers by about 68 basis points, on
average. Consistent with DiamondÕs reputation-building argument, we document that
Þrm reputation is negatively related to the at-issue yield spread for initial public debt
o¤ers
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