Bank Monitoring: Evidence from Syndicated Loans

75 Pages Posted: 30 Aug 2016 Last revised: 20 Nov 2020

See all articles by Matthew Gustafson

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Ivan Ivanov

Federal Reserve Bank of Chicago

Ralf Meisenzahl

Federal Reserve Bank of Chicago

Date Written: January 7, 2020

Abstract

We directly measure banks' monitoring of syndicated loans. Banks typically demand borrower information on at least a monthly basis. About 20% of loans involve active monitoring (i.e., site visits or third-party appraisals). Monitoring increases with the lead bank's incentives and the value of information and is negatively associated with loan spreads and maturity. The monitoring captured by our measures can either complement or substitute for covenant-based monitoring, depending on whether the monitoring informs covenant compliance. Banks increase monitoring following deteriorations in borrower financial condition and credit line drawdowns. Finally, monitoring is positively related to future covenant violations and loan renegotiations.

Keywords: Bank Lending, Bank Monitoring, Syndicated Loans

JEL Classification: G21

Suggested Citation

Gustafson, Matthew and Ivanov, Ivan and Meisenzahl, Ralf, Bank Monitoring: Evidence from Syndicated Loans (January 7, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2831455 or http://dx.doi.org/10.2139/ssrn.2831455

Matthew Gustafson (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Ivan Ivanov

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

Ralf Meisenzahl

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://www.ralfmeisenzahl.com

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