Regulatory Arbitrage and Cross-Border Syndicated Loans
54 Pages Posted: 15 Nov 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. The results indicate that international banks have a tendency to switch loan origination toward 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.
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