Syndicated Loans, Foreign Banking and Capital Market Development
Rainer F. H. Haselmann
Goethe University Frankfurt - Faculty of Economics and Business Administration
New York University - Stern School of Business
January 31, 2009
In this paper we examine the role of syndicated loan markets in financial market development in 24 European countries. We find credit spreads to be negatively related to market size in small markets and positively related in large financial markets. Syndicated loans play a different role in large versus small financial systems. In small markets, loan syndications are a substitute for missing public debt markets, while in large financial markets loan syndicates enable arrangers to spread risk more efficiently. Foreign banks tend to reinforce this effect. In small markets, they transfer external finance across borders and in large markets they tend to take on more risky projects. Consequently, we find that characteristics of loan contracts arranged by foreign banks in small versus large markets differ considerably.
Number of Pages in PDF File: 24
JEL Classification: F36, G15, G21, P34
Date posted: July 16, 2009
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