Regulatory Arbitrage and Cross-Border Syndicated Loans
CentER Discussion Paper No. 2019-028
53 Pages Posted: 18 Oct 2019
Date Written: October 9, 2019
This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks’ choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks’ preferences to operate in countries with varying regulations and institutions. Our results indicate that international banks have a tendency to switch loan origination towards countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement.
Keywords: regulatory arbitrage, creditor rights
JEL Classification: G21, G38
Suggested Citation: Suggested Citation