Regulatory Arbitrage and Cross-Border Syndicated Loans

CentER Discussion Paper No. 2019-028

53 Pages Posted: 18 Oct 2019

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Bálint L. Horváth

University of Arizona - Eller College of Management

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Date Written: October 9, 2019

Abstract

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

Demirgüç-Kunt, Asli and Horváth, Bálint L. and Huizinga, Harry, Regulatory Arbitrage and Cross-Border Syndicated Loans (October 9, 2019). CentER Discussion Paper No. 2019-028, Available at SSRN: https://ssrn.com/abstract=3466742 or http://dx.doi.org/10.2139/ssrn.3466742

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Bálint L. Horváth

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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