What's My Share? Information Acquisition by Loan Syndicate Participants

54 Pages Posted: 30 Jan 2020 Last revised: 5 May 2020

See all articles by Sabrina Chi

Sabrina Chi

Texas Tech University - Area of Accounting

Hengda Jin

University of Utah - David Eccles School of Business

Edward Owens

University of Utah - David Eccles School of Business

Karen Ton

Emory University - Goizueta Business School

Date Written: April 24, 2020

Abstract

Participant lenders in syndicated loans generally rely on the lead arranger for borrower screening and monitoring because the lead arranger is primarily responsible for interactions with the borrower. This gives rise to both moral hazard and adverse selection concerns. We investigate whether participant lenders independently acquire borrower accounting reports to help mitigate these information frictions. We find that participant lenders’ SEC EDGAR searches of borrower filings are positively associated with their shares of the syndicated loan, consistent with mitigation of intra-syndicate information asymmetry. This association is weaker when the lead arranger has a better reputation, when participant lenders have a prior lending relationship with the borrower, and when the borrower’s information environment is richer, suggesting information frictions are less acute in such cases. This novel direct evidence enhances our understanding of the role of accounting information in facilitating deal formation in syndicated loan markets.

Keywords: moral hazard, adverse selection, syndicated loans, loan participants, EDGAR

JEL Classification: D82, D83, G21, M40

Suggested Citation

Chi, Sabrina and Jin, Hengda and Owens, Edward and Ton, Karen, What's My Share? Information Acquisition by Loan Syndicate Participants (April 24, 2020). Available at SSRN: https://ssrn.com/abstract=3513070 or http://dx.doi.org/10.2139/ssrn.3513070

Sabrina Chi

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

Hengda Jin

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

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Edward Owens (Contact Author)

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

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

Karen Ton

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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