Competition or Collaboration? The Reciprocity Effect in Loan Syndication

Bank Lending Networks, Experience, Reputation, and Borrowing Costs: Empirical Evidence from the French Syndicated Lending Market

“…Hence, prior relationships between syndicate members have a significant impact on the probability of syndicating a deal together (Champagne and Kryzanowski, 2007). These relationships are often reciprocal arrangements in the sense that lenders maintain stable relationships between them and rotate their roles in subsequent joint syndications (Cai, 2010). Moreover, Cai et al (2010) find that lead arrangers tend to choose participants having a close lending expertise in terms of borrower industry or geographic location.…”

“…These relationships are often reciprocal arrangements in the sense that lenders maintain stable relationships between them and rotate their roles in subsequent joint syndications (Cai, 2010). Moreover, Cai et al (2010) find that lead arrangers tend to choose participants having a close lending expertise in terms of borrower industry or geographic location. Furthermore, as the arrangers are responsible for due diligence, allocation of the loan to other syndicate members, and ex post monitoring, banks in the syndicate will often rely on the leaders' reputation in making lending decisions (Ross, 2010;and Bushman and Wittenberg-Moerman, 2011).…”

“…On the one hand, if lead banks' reputation acts as a certification device reducing adverse consequences of information asymmetry within the syndicate, loan spreads can be lower especially when informational frictions are expected to be severe (Gatti et al, 2008;and Ross, 2010). Regarding the foundation of experience or reputation, i.e., reciprocity, results provided by Cai (2010) also show that loans arranged in a reciprocal way are less costly for borrowers. Similar results are obtained by Cai et al (2010) for syndicates composed of arrangers which are closer in terms of lending expertise.…”

“…Social networks are considered as fundamental drivers of social capital (Di Cagno and Sciubba, 2010) and the syndicated lending market bears several social network features because it serves as an information network which allows the acquisition of private information on borrowers' quality and as a capital network which allows the raising of the necessary funding of loans (Baum et al, 2003;Baum et al, 2004;and Morrison and Wilhelm, 2007). Moreover, recent empirical evidence by Champagne and Kryzanowski (2007), Cai (2010) and Cai et al (2010) show that collaboration and reciprocity are important features of bank loan syndication as reciprocal arrangements among syndicate arrangers appear to be a very common practice leading to choosing banks with similar lending expertise.…”

Financial Institutions Network and the Certification Value of Bank Loans

“…Indeed, previous relationships between lenders can help alleviate informational frictions and the agency costs of syndication (Champagne and Kryzanowski, ). These are often reciprocal arrangements in the sense that lenders maintain stable relationships among members and rotate their roles in subsequent joint syndications (Cai, ). Houston Lee, and Suntheim () find that connected banks are more likely to partner together in loan syndicates and central banks in the network are more likely to lead or colead large syndicates.…”