Lead arranger reputation and the structure of loan syndicates

Chaudhry, Sajid M.; Kleimeier, Stefanie

doi:10.1016/j.intfin.2015.05.021

Cited by 21 publications

(15 citation statements)

References 24 publications

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“…As the uncertainty stems from the degree of information asymmetry, our first proxy for uncertainty is the rating of the borrower. As it is well established in the literature that the information about the borrower is more likely to be opaque when the borrower does not have a credit rating (see for example, Dennis and Mullineaux, 2000;Sufi, 2007;Chaudhry and Kleimeier, 2015). The borrowers reveal less information which increases the uncertainty about their affairs if they have not been rated by a rating agency.…”

Section: Evidence Of Clusteringmentioning

confidence: 99%

Clustered pricing in the corporate loan market: Theory and empirical evidence

Chaudhry

Bajoori

Nandeibam

2019

Journal of Economic Behavior & Organization

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Existing theories explaining security price clustering as well as clustering in the retail deposit and mortgage markets are incompatible with the clustering in the corporate loan market. We develop a new theoretical model that the attitude of the lender toward the uncertainty about the quality of the borrower leads to the clustering of spreads. Our empirical results support our theoretical model and we find that clustering increases with the degree of uncertainty between the lender and the borrower. In contrast, clustering is less likely when the uncertainty about the quality of the borrower has been reduced through repeated access and through prior interactions of the lender and the borrower.

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Section: Evidence Of Clusteringmentioning

confidence: 99%

Clustered pricing in the corporate loan market: Theory and empirical evidence

Chaudhry

Bajoori

Nandeibam

2019

Journal of Economic Behavior & Organization

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“…One of the contributions of this paper is the results shown in Table 10, which represent the impact of information asymmetry on the changes in lending to firms during the GFC. We devise direct proxies of information asymmetry following Sufi (2007), Bharath, Dahiya, Saunders, and Srinivasan (2011), and Chaudhry and Kleimeier (2015) and observe the bank lending channel via information asymmetry between the borrower and lender. Our first proxy is the natural log of 1+ number of previous loans, Ln (1 + no.…”

Section: Bank Lending Channel and Information Asymmetrymentioning

confidence: 99%

Transmission of a global financial crisis shock to an emerging economy

2018

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Using a unique dataset consisting of all corporate loans in Pakistan, we study the impact of the global financial crisis (GFC) on the lending ability of its banking sector. We also take into account various bank and loan types along with extensive margins, firm size effects, and impact of information asymmetry. Our findings show that the Pakistani banking sector was indeed affected by the GFC as high exposure banks, who borrow relatively more internationally, reduce lending to local firms and this impact is larger for small firms. We also find differences in the lending ability of various bank types and loan types. By using direct information asymmetry measure, we find that banks reduced lending after the global financial crisis shock. However, the information gathered from the previous relationship of the borrower with relatively low exposure banks can overcome the negative financial shock and increase lending after the shock. These findings are very relevant in the context of the spillover effects of the GFC and have important policy implications for emerging markets.

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“…Thus, the lead arranger facilitates a reduction in the loan spread through a reduction in search and information costs and the alignment of the lead arranger's incentives with that of other members of the syndicate. Dennis and Mullineaux (2000), Sufi (2007), Chaudhry and Kleimeier (2015), and Lee and Mullineaux (2004) provide empirical evidence that the syndicate structure is less concentrated with arrangers syndicating a greater portion of the loan when the borrowing firm is public, the loan amount is large, and the arranger has a strong reputation. Vu and Skully (2008), Ivashina (2009), andNini (2004) show that loan spreads are lower when the arranger discloses more information to the syndicate members, holds a higher share of the loan, has a strong reputation, and is local.…”

Section: Introductionmentioning

confidence: 99%

Domestic lead arranger certification and the pricing of project finance loans

Ahiabor

James

2018

Int. J Fin Econ

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Using a sample of 1,270 project finance syndicated loan tranches arranged from 1998 to 2011 and worth over $300 billion, we estimate the causal impact of certification by domestic lead arrangers on the pricing of project finance loans in emerging markets. We hypothesize that, on average, domestic arrangers are better able to structure and screen project finance deals, credibly communicate the true value of a project and its underlying network of contracts, and monitor the loan contract compared with foreign arrangers. If so, all things being equal, domestic arranger certification should result in lower loan spreads compared with foreign arranger certification. Our results support this hypothesis. After controlling for project and loan characteristics and the potential endogeneity of the lead arranger's selection, we find that certification by domestic arrangers causes a significant reduction in loan spreads across different industrial categories and geographic locations of projects. This finding demonstrates the economic value of domestic arranger certification in project finance lending. Our results suggest that, in the presence of information asymmetry between project sponsors and participant lenders in the syndicate, certification by domestic arrangers offers a superior mechanism to minimize search, information, and monitoring costs.

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Lead arranger reputation and the structure of loan syndicates

Cited by 21 publications

References 24 publications

Clustered pricing in the corporate loan market: Theory and empirical evidence

Clustered pricing in the corporate loan market: Theory and empirical evidence

Transmission of a global financial crisis shock to an emerging economy

Domestic lead arranger certification and the pricing of project finance loans

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