What's My Share? Information Acquisition by Loan Syndicate Participants
54 Pages Posted: 30 Jan 2020 Last revised: 5 May 2020
Date Written: April 24, 2020
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: Suggested Citation