CEO Risk‐Taking Incentives and Bank Loan Syndicate Structure

40 Pages Posted: 24 Dec 2014

See all articles by Liqiang Chen

Liqiang Chen

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science

Date Written: November/December 2014

Abstract

This paper investigates the effects of a borrowing firm's CEO risk‐taking incentives on the structure of the firm's syndicated loans. When CEO risk‐taking incentives are high, syndicates are structured to facilitate better due diligence and monitoring efforts. These syndicates have a smaller number of total lenders and are more concentrated, and lead arrangers will retain a greater portion of the loan. Moreover, CEO risk‐taking incentives have a lesser effect on the syndicate structure when lead arrangers have a good reputation and a prior lending relationship with a borrowing firm, while they have a greater effect on the syndicate structure when borrowing firms have low information transparency, are financially distressed or have low growth prospects.

Keywords: risk‐taking incentives, syndicate loans

Suggested Citation

Chen, Liqiang, CEO Risk‐Taking Incentives and Bank Loan Syndicate Structure (November/December 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 9-10, pp. 1269-1308, 2014, Available at SSRN: https://ssrn.com/abstract=2542426 or http://dx.doi.org/10.1111/jbfa.12087

Liqiang Chen (Contact Author)

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada

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