Tranching in the Syndicated Loan Market around the World

Journal of International Business Studies, Forthcoming

46 Pages Posted: 13 Jun 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Florencio Lopez de Silanes

SKEMA Business School; National Bureau of Economic Research (NBER)

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Armin Schwienbacher

SKEMA Business School

Date Written: May 25, 2019

Abstract

Loan tranching allows banks to manage risk and facilitate firm financing, which may be essential for firms that cannot access investors from stock markets. We analyze the determinants and benefits of loan tranching by pooling the tranches of individual loans to create the largest cross-country sample of syndicated loans, covering more than 150,000 loans from multinational and domestic firms. We find that, in addition to market, deal, and borrower characteristics, legal and institutional differences impact loan tranching. Strong creditor protection and efficient debt collection increase the probability of tranching and reduce tranche spreads, ultimately promoting firms’ access to debt. We also find evidence that tranching facilitates the financing of multinational firms abroad due to the transfer of legal and cultural institutions to foreign subsidiaries. Overall, our results suggest that tranching plays an important role in reducing a country’s financial development gap and promotes firms’ access to debt.

Keywords: Financial Contracting, Tranche, Syndicate, Loan Enforcement

JEL Classification: G2, G21, G32, K22

Suggested Citation

Cumming, Douglas J. and Lopez de Silanes, Florencio and McCahery, Joseph A. and Schwienbacher, Armin, Tranching in the Syndicated Loan Market around the World (May 25, 2019). Journal of International Business Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3395114

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Florencio Lopez de Silanes (Contact Author)

SKEMA Business School ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777
France

HOME PAGE: http://sites.google.com/view/armin-schwienbacher

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