Bui D.G.Chen Y.-S.Hasan I.Lin C.-Y.2019-07-242019-07-24201803784266https://scholars.lib.ntu.edu.tw/handle/123456789/414644We investigate the effect of managerial ability versus luck on bank loan contracting. Borrowers showing a persistently superior managerial ability over previous years (more likely due to ability) enjoy a lower loan spread, while borrowers showing a temporary superior managerial ability (more likely due to luck) do not enjoy any spread reduction. This finding suggests that banks can discern ability from luck when pricing a loan. Firms with high-ability managers are more likely to continue their prior lower loan spread. The spread-reduction effect of managerial ability is stronger for firms with weak governance structures or poor stakeholder relationships, corroborating the notion that better managerial ability alleviates borrowers�� agency and information risks. We also find that well governed banks are better able to price governance into their borrowers�� loans, which helps explain why good governance enhances bank value. ? 2017 Elsevier B.V.Agency and information riskCorporate governanceManagerial abilityStakeholder relationshipThe cost of debt[SDGs]SDG16journal article10.1016/j.jbankfin.2017.09.0232-s2.0-85042145975https://www.scopus.com/inward/record.uri?eid=2-s2.0-85042145975&doi=10.1016%2fj.jbankfin.2017.09.023&partnerID=40&md5=cfec722cbafc62c4e26eaff38f6bda5e