Lending Along the Supply Chain

40 Pages Posted: 28 Dec 2019 Last revised: 7 Dec 2020

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Xinlei Li

Hong Kong University of Science and Technology

Edward Owens

University of Utah - David Eccles School of Business

Date Written: December 1, 2020

Abstract

Despite the fact that economic interconnections among firms are very common, there is little research that examines the equilibrium outcome of such interconnections in credit markets. We examine how supply chain interconnections among borrowers within a lender’s loan portfolio affect equilibrium loan spread and lead arranger share in the syndicated loan market. We find that both loan spread and lead arranger share are significantly lower when the lead arranger has a pre-existing loan with the borrower’s major customer. This finding suggests that such “supply chain loans” ease syndicate participants’ moral hazard concerns more than they exacerbate concerns about adverse selection. We further document that these effects are stronger where syndicate participants’ information asymmetry concerns are more pronounced. Consistent with supply chain loans providing benefits to both the borrower and lead arranger, we provide evidence that a borrower is more likely to obtain a loan from a lender who already has an existing loan with its key customer. Our findings provide insights into the mechanisms through which supply chain interdependencies, and more generally, economic relationships, affect debt markets.

Keywords: debt contracts, syndicated loans, supply chain, moral hazard, adverse selection

JEL Classification: D82, G21, G32

Suggested Citation

Amiram, Dan and Li, Xinlei and Owens, Edward, Lending Along the Supply Chain (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3499812 or http://dx.doi.org/10.2139/ssrn.3499812

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Xinlei Li (Contact Author)

Hong Kong University of Science and Technology ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Edward Owens

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
8015815732 (Phone)

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