A Theory of Syndicated Loans

47 Pages Posted: 10 Nov 2017 Last revised: 9 Apr 2021

See all articles by Deeksha Gupta

Deeksha Gupta

Johns Hopkins University

Jan Starmans

Department of Finance, Stockholm School of Economics

Date Written: April 9, 2021

Abstract

We develop a theory that rationalizes syndicated loans with (1) a relationship lender who lends to the firm repeatedly over time and monitors the firm, (2) transactional lenders who lend to the firm infrequently and do not monitor, and (3) frequent loan renegotiations. Transactional lenders are biased toward liquidation, whereas relationship lenders are biased toward continuation. By borrowing simultaneously from both types of lenders, the firm generates disagreement between them. This disagreement induces costly renegotiation upon default, which can increase monitoring incentives and thereby reduce the firm's cost of credit.

Keywords: Syndicated loans, transactional lending, relationship lending, delegated monitoring, renegotiation.

JEL Classification: G21, G23, G32.

Suggested Citation

Gupta, Deeksha and Starmans, Jan, A Theory of Syndicated Loans (April 9, 2021). Available at SSRN: https://ssrn.com/abstract=3067231 or http://dx.doi.org/10.2139/ssrn.3067231

Deeksha Gupta

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Jan Starmans (Contact Author)

Department of Finance, Stockholm School of Economics ( email )

+46 8 736 9181 (Phone)

HOME PAGE: http://sites.google.com/site/janstarmans11/

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