Modeling the Role of Networks in Loan Syndicate Markets

72 Pages Posted: 23 Dec 2018 Last revised: 27 Jul 2023

See all articles by Jeffrey H. Harris

Jeffrey H. Harris

American University - Department of Finance and Real Estate

Ioannis Spyridopoulos

American University, Kogod School of Business

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: July 25, 2023

Abstract

We analyze a stylized loan-auction model where competing banks internalize the tradeoff between gaining lead status and attracting participation in large syndicated loans. We show that successful syndicate leaders can sustain low lending rates by earning higher fee income and reducing syndication risk. Consistent with our model whereby networks affect bidding outcomes, we find that well-connected lenders form larger syndicates, use fewer co-arrangers, and offer lower rates. To address endogenous firm-bank matching, we exploit exogenous credit relationship transfers around bank mergers. Our findings help explain why the syndicated loan market remains competitive despite the rise in bank consolidations.

Keywords: Banking networks, syndicate structure, syndication risk, loan pricing

JEL Classification: L14, G21

Suggested Citation

Harris, Jeffrey H. and Spyridopoulos, Ioannis and Zekhnini, Morad, Modeling the Role of Networks in Loan Syndicate Markets (July 25, 2023). Available at SSRN: https://ssrn.com/abstract=3295980 or http://dx.doi.org/10.2139/ssrn.3295980

Jeffrey H. Harris

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Ioannis Spyridopoulos (Contact Author)

American University, Kogod School of Business ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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