The Flight Home Effect: Evidence from the Syndicated Loan Market During Financial Crises

58 Pages Posted: 20 Apr 2011

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2011

Abstract

In the context of the global market for syndicated bank loans, we provide evidence that the collapse of international markets during financial crises can in part be explained by a flight home effect. We show that the home bias of lenders' loan origination increases by approximately 20 percent if the bank's country of origin experiences a banking crisis. Banks with less stable funding sources, being more vulnerable to liquidity shocks, exhibit a stronger flight home effect. This flight home effect is distinct from a flight to quality effect because borrowers in emerging markets and advanced economies are similarly affected by the lenders' portfolio rebalancing in favor of domestic borrowers. Similarly, the flight home of international lenders does not appear to be exclusively away from countries with weak investor protection or from borrowers with lower credit ratings. Overall, the results indicate that the home bias of international capital allocation tends to increase in the presence of adverse economic shocks affecting the net wealth of international investors.

Keywords: Home Bias, Financial crisis, Flight to quality, Syndicated loans

JEL Classification: F4, G2

Suggested Citation

Giannetti, Mariassunta and Laeven, Luc A., The Flight Home Effect: Evidence from the Syndicated Loan Market During Financial Crises (April 2011). CEPR Discussion Paper No. DP8337. Available at SSRN: https://ssrn.com/abstract=1815812

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
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SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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