Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market
60 Pages Posted: 15 Mar 2010 Last revised: 5 Nov 2010
Date Written: November 1, 2010
We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large-scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, borrower bankruptcies have little effect on syndication activity of the most dominant lead arrangers, and in years in which many lead arrangers experience borrower bankruptcies.
Keywords: Reputation, Loan Syndicates, Bankruptcies
JEL Classification: G20, G21
Suggested Citation: Suggested Citation