Supply Chain Relationships and Syndicate Loan Structure
54 Pages Posted: 8 Apr 2019 Last revised: 12 Aug 2019
Date Written: August 6, 2019
Supply chain relationships provide a certification of the borrower’s quality in the credit market, but they expose lenders to additional risks. Consistent with the certification view, firms with supply chain links benefit from an easier access to loans. However, this effect is limited to loans in which the lead bank retains a high fraction, i.e. loans where the lender does not diversify. After showing that supply chain participation indeed increases the lead bank’s share, we document that supply chain relationships positively affect the cost of the loans indirectly through its effect on the loan structure. We do not find evidence of additional costs are associated with the supply chain per se. This evidence suggests that lead agents demand higher markups for their lack of diversification. Our results are robust after addressing endogeneity concerns, specific supplier-customer relationship characteristics, and relationship lending.
Keywords: Access to syndicated loans, Supply chain relationships, Loan syndication structure, Loan pricing
JEL Classification: G21, G30, L1
Suggested Citation: Suggested Citation