What’s my Share? The Use of Borrower Accounting Reports by Loan Syndicate Participants

54 Pages Posted: 30 Jan 2020 Last revised: 22 Oct 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

Indiana University

Date Written: October 20, 2020

Abstract

Participant lenders in syndicated loans depend on information collected by the lead lender for borrower screening and monitoring, as the lead lender is primarily responsible for ex-ante due diligence in evaluating borrowers. This gives rise to both moral hazard and adverse selection concerns within the syndicate. We investigate whether participant lenders use borrower accounting reports to 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 stronger for searches of current period filings and 10-K/Qs, and weaker when the lead lender is more reliable and when the borrower’s information environment is richer. This novel 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? The Use of Borrower Accounting Reports by Loan Syndicate Participants (October 20, 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

Indiana University ( email )

Kelley School of Business
1309 E. Tenth Street, HH5100
Bloomington, IN 47405
United States

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