Lending Relationships and the Pricing of Syndicated Loans
61 Pages Posted: 6 Feb 2020 Last revised: 27 Apr 2020
Date Written: January 14, 2020
In the primary market, the lead bank makes less adjustment to the initial pricing terms of a syndicated loan and shortens syndication time when it has a stronger relationship with the borrower. These impacts concentrate in cold loans with weak demand. A stronger relationship also reduces loan underpricing, and this effect is more significant for hot loans with strong demand. A relationship lead bank relies less on information from syndicate members. Exogenous shocks to relationships caused by bank mergers and closures confirm our findings. Our evidence suggests that lending relationships help price discovery in the pricing of syndicated loans.
Keywords: Syndicated Loan, Lending Relationship, Primary Market, Loan Underwriting, Originate-to-Distribute (OTD)
JEL Classification: G14, G21, G24, L14
Suggested Citation: Suggested Citation