Foreign Institutional Ownership and Cross-Border Lending

Abstract

We study the role of foreign institutional investors in cross-border lending. We find that a borrower’s foreign institutional ownership is positively associated with the likelihood of foreign banks leading a loan syndicate. This relation is stronger among borrowers with more opaque information environment and when foreign institutional shareholders have better access to soft information. We also find that foreign banks are more likely to extend loans to borrowers with foreign institutional shareholders that are headquartered in the same country or members of the same loan associations. These results are consistent with foreign institutional shareholders facilitating cross-border lending by reducing monitoring costs and information frictions faced by foreign lenders.

Keywords: Syndicated Loans, Foreign Institutional Ownership, Cross-Border Lending, Information, Monitoring

JEL Classification: G23, G32