Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors
48 Pages Posted: 29 Oct 2015 Last revised: 25 Sep 2020
Date Written: June 2, 2017
Using a sample of syndicated loans to private equity (PE)-backed IPO companies, we examine how a third-party bank relationship influences the syndicate structure of a loan. We find that a stronger relationship between the lead bank and the borrower’s PE firm enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE-bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank’s relationship with a large equity holder of the borrower facilitates information production in lending.
Keywords: Third-Party Banking Relationship, Information Asymmetry, Private Equity, Syndicate Structure, IPO
JEL Classification: G21, G23
Suggested Citation: Suggested Citation