The Influence of Loan Officers on Loan Contract Design and Performance

51 Pages Posted: 9 Aug 2019

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Janet Gao

Indiana University - Kelley School of Business

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Date Written: August 6, 2019

Abstract

We investigate the extent to which loan officers generate individual effects on the design and performance of syndicated loan deals. We construct a novel database containing the identities of 6,821 loan officers involved in structuring syndicated loan deals. This data allow us to exploit movement of loan officers across banks to disentangle loan officer effects from bank fixed effects and estimate loan officers’ influence on both lending terms and loan performance. We find that loan officers have a significant influence on loan terms and loan performance that is incremental to bank and borrower characteristics. Our evidence suggests that loan officers exert less influence over interest spreads than over covenant package design. We also provide evidence consistent with recent comparable loan deals embedding hard information that induces variation in loan spreads that is beyond the control of loan officers. In contrast, we find no evidence that recent comparables induce non-discretionary variation in covenant design. Finally, we provide evidence consistent with covenant package design serving as a channel through which loan officers influence loan performance.

Keywords: loan officers, banking, comparables pricing, syndicated loans

JEL Classification: G30, G21, D23, J24

Suggested Citation

Bushman, Robert M. and Gao, Janet and Martin, Xiumin and Pacelli, Joseph, The Influence of Loan Officers on Loan Contract Design and Performance (August 6, 2019). Available at SSRN: https://ssrn.com/abstract=3433063 or http://dx.doi.org/10.2139/ssrn.3433063

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Xiumin Martin

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Joseph Pacelli (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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