Bank Monitoring: Evidence from Syndicated Loans
75 Pages Posted: 30 Aug 2016 Last revised: 20 Nov 2020
Date Written: January 7, 2020
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: Suggested Citation