Download This PaperLending Relationships and the Pricing of Syndicated Loans
Management Science, forthcoming
52 Pages Posted: 6 Feb 2020 Last revised: 6 Mar 2023
Date Written: January 14, 2020
Abstract
Using a dataset on syndicated loan primary market pricing adjustments, we examine whether relationship banks’ information advantage facilitates price discovery in loan issuances. We find that the lead bank makes fewer adjustments to the initial pricing terms of a syndicated loan and shortens the syndication time when it has a stronger relationship with the borrower. A stronger relationship also reduces loan underpricing. A relationship lead bank relies less on information from syndicate members. Exogenous shocks to relationships caused by bank mergers and closures confirm our findings. We contribute to the literature by showing that relationship lending improves loan pricing efficiency.
Keywords: Syndicated Loan, Lending Relationship, Primary Market, Loan Underwriting, Originate-to-Distribute (OTD)
JEL Classification: G14, G21, G24, L14
Suggested Citation: Suggested Citation