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

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business

Date Written: November 1, 2010

Abstract

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

Gopalan, Radhakrishnan and Nanda, Vikram K. and Yerramilli, Vijay, Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market (November 1, 2010). Journal of Finance,Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571474

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Vijay Yerramilli (Contact Author)

University of Houston, C. T. Bauer College of Business ( email )

Houston, TX 77204
United States
713-743-2516 (Phone)

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