What’s My Share? The Acquisition of Borrower Accounting Reports by Syndicate Participant Lenders

Abstract

Economic theory suggests that it is efficient for participant lenders to delegate ex ante borrower screening to lead arrangers in syndicated loans, because it is costly for syndicate participant lenders to duplicate lead arranger efforts by directly collecting borrower information. However, such delegation introduces information risk between lead arrangers and participant lenders. We investigate whether syndicate participant lenders overcome this friction by independently obtaining borrower accounting reports to supplement the information provided by lead arrangers. Employing a sample of banks that use EDGAR, we find that an individual participant lender’s search of borrowers’ EDGAR filings during the syndication period is positively associated with that participant lender’s share of the loan at the end of the syndication period. Further tests provide evidence that the key mechanism is mitigation of lead arranger information risk. This novel evidence enhances our understanding of how participant lenders’ information acquisition facilitates deal formation in syndicated loan markets.

Keywords: syndicated loans, participant lenders, EDGAR, information risk

JEL Classification: D82, D83, G21, M40