Loan Syndicate Structure: Evidence from Ex Post Data

42 Pages Posted: 14 Jan 2008

See all articles by Kamphol Panyagometh

Kamphol Panyagometh

NIDA Business School

Gordon S. Roberts

York University - Schulich School of Business

Date Written: January 14, 2008

Abstract

Because loan syndication involves a repeated game between lead banks and syndicate members we predict that lead banks do not use their private information to exploit participating banks in lending syndicates but rather focus on accurately certifying loan quality to build reputation for future deals. Examining the borrower's debt rating changes (and shifts in Altman's Z scores), we uncover evidence that the lead bank syndicates a larger proportion of loans subsequently not downgraded. Modeling the proportion of a loan syndicated, we find that lead banks employ covenant design and reputation to mitigate conflicts with syndicate participants. Both results support the certification view of the role of lead banks.

Keywords: Bank loans, certification, incentive conflicts

JEL Classification: G21

Suggested Citation

Panyagometh, Kamphol and Roberts, Gordon S., Loan Syndicate Structure: Evidence from Ex Post Data (January 14, 2008). Available at SSRN: https://ssrn.com/abstract=1083707 or http://dx.doi.org/10.2139/ssrn.1083707

Kamphol Panyagometh

NIDA Business School ( email )

118 Seri Thai
Bangkapi
Bangkok
Thailand

Gordon S. Roberts (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)

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