Universal Banks and Corporate Control: Evidence from the Global Syndicated Loan Market

Review of Financial Studies, Forthcoming

Darden Business School Working Paper No. 2038027

57 Pages Posted: 14 Apr 2012

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Date Written: April 10, 2012

Abstract

We investigate the effects of bank control over borrower firms whether by representation on boards of directors or by the holding of shares through bank asset management divisions. Using a large sample of syndicated loans, we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm. Bank-firm governance links are associated with higher loan spreads during the 2003-2006 credit boom, but lower spreads during the 2007-2008 financial crisis. Additionally, these links mitigate credit rationing effects during the crisis. The results are robust to several methods to correct for the endogeneity of the bank-firm governance link. Our evidence, consistent with intertemporal smoothing of loan rates, suggests there are costs and benefits from banks’ involvement in firm governance.

Keywords: Universal banking, Syndicated loans, Corporate boards, Institutional ownership

JEL Classification: G21, G32

Suggested Citation

Ferreira, Miguel Almeida and Matos, Pedro, Universal Banks and Corporate Control: Evidence from the Global Syndicated Loan Market (April 10, 2012). Review of Financial Studies, Forthcoming; Darden Business School Working Paper No. 2038027. Available at SSRN: https://ssrn.com/abstract=2038027

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

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

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