Dr. Yili Lian, assistant professor of business at Penn State Worthington Scranton, presented his research paper at the 2014 Paris Financial Management Conference this past December.
The paper, titled, "Institutional Investors and the Cost of Bank Loans: Monitoring and Control," studied the impact of institutional investors on the cost of bank loans in three aspects: loan spreads, collateral requirements and the number of pre-payment covenants.
His findings show that the trade-off of institutional monitoring and control determines the cost of bank loans. Institutional monitoring reduces the cost of bank loans, while institutional control increases the cost of bank loans.
"Prior literature shows institutional monitoring aligns the interest between managers and shareholders, therefore reducing the cost of capital," Dr. Lian explained. "As argued by Jesen and Meckling (1976), strong shareholder control raises debtholders' concerns regarding asset substitution. So this project combines the two driving forces together and show that shareholder control and monitoring jointly determines the cost of capital."
"The suggestion for individuals and investors is that we need to pay attention to the dark side of institutional control besides the bright side of institutional monitoring," he said.
Dr. Lian has been teaching at Penn State Worthington Scranton since 2013. Prior to joining the University, he was an adjunct professor and Ph.D. student at Baruch College, City University of New York, where he attained his doctorate in finance.
He lives in Mount Pocono, PA.
